Chancellor Philip Hammond drops National Insurance hike in embarrassing Budget U-turn

Philip Hammond has conceded defeat in the row over his Spring Budget plan to hike National Insurance Contributions (NICs) for millions of self-employed workers in the UK on Wednesday (15 March).

The Chancellor was forced into making the embarrassing U-turn after more than a dozen Conservative MPs spoke out against the reform.

The Tories had promised not to raise income tax, VAT or NICs in their 2015 general election manifesto.

But Hammond unveiled plans to scrap class two NICs for self-employed workers from April 2018 and increase the main rate (class four) NICs by 9% to 10%, with an additional 1% hike in April 2019, saying it was a "small step" in the right direction.

"It is very important both to me and to the prime minister that we are compliant not just with the letter, but also the spirit, of the commitments that were made," he said in a statement .

"In light of what has emerged as a clear view among colleagues and a significant section of the public, I have decided not to proceed with the Class 4 NIC measures set out in the Budget.

"There will be no increases in NICs rates in this Parliament. We will continue with the abolition of Class 2 NICs from April 2018. The cost of the changes I am announcing today will be funded by measurers to be announced in the Autumn Budget."

But despite the political furore, the respected independent think-tank the Institute for Fiscal Studies (IFS) backed the NICs move.

"Clearly the most controversial announcement yesterday was the increase in self-employed NI rates. This appears to break a foolish manifesto commitment not to raise any of the major taxes," Paul Johnson, the director of the IFS, said. "On the other hand, it is a small change taking a small step to correcting a big problem with the current tax system.

"The problem needs a much more thorough review and strategy to deal with it, as do many other problems in the tax system. If politicians continue to make silly manifesto pledges about not changing taxes and the rest of us resist sensible changes such as this, we will end up with the tax system we deserve – inefficient, inequitable, complex and increasingly unable to raise revenue in the fact of a changing economy."