It only took a week for the government to back down from plans to raise National Insurance payments for self-employed people.
The decision to raise the amount of self-employed people have to pay was one of the major headlines from the budget last week (more about that here).
But, people were quick to point out after, in 2015 the Conservative Party made a promise that it would ‘lock’ three of the taxes people pay – one of them was National Insurance. They would never, ever, ever raise it, they said (well, for five years at least).
So, by introducing the tax increases for self-employed people, the UK Chancellor, Philip Hammond (the man who looks after the money) was breaking the promise the Conservative Party made to voters before it was elected.
He said, "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.
"In the 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 measure set out in the Budget."
He’s kind-of saying here he doesn’t believe his policies actually did technically break the promise, but that the fact it was so unpopular means he’s reconsidered.
In a letter to MPs, he said he still believes the changes are the fairest way to narrow the gap between the tax rates self employed people pay, and what people employed by others pay. This gap, he argued in his budget speech, meant that some people were abusing the system.
“In fact, some of our highest paid people… are treated as self-employed,” he said.
“An employee earning £32,000 ($39,000) will incur between him and his employer £6,170 of National Insurance Contributions.
A self-employed person earning the equivalent amount will pay just £2,300 – significantly less than half as much.” (Not even going to go into the use of him there…)
It's not the first time the government has backtracked
In fact, it’s the third time in three years a backlash has forced the government to have a rethink.
In 2015, Hammond’s predecessor, George Osborne was forced to change his mind on cutting the amount of help people got with their taxes (known as tax credits), the policy was estimated to cost low-income families £1000 a year. In a budget speech he admitted the cost to low-income families would be too great, so he got rid of the policy altogether.
Then in 2016, Osborne was again forced to back down on a plan to cut the amount of money government spent on Personal Independence Payments (PIP) to people with disabilities.
The shadow chancellor – who basically has the same role in the opposite party in Parliament (his job is to challenge the chancellor on his policies) and say what the opposition party would do if it was in power – the Labour MP John McDonnell, said, "This is chaos. It is shocking and humiliating." Not a good look
And these changes were expected to raise the government £645m a year by 2019-20 and £2bn by 2022. The chancellor keeps talking about 'balancing the books'. In his budget speech he argued that by not spending more than the government was saving, what he calls a "balanced budget", he's ensuring the UK has a stable economy. So that's a £2bn hole – he said that money would raise the funds for a planned boost to funding for social care – which he's now going to have to work out how to fill.