The government’s U-turn on the unfair £2bn national insurance hike for the self-employed is a humiliation for chancellor Philip Hammond, who has shredded his reputation after only his first budget – and broke a manifesto promise to do it. Labour opposed the measure from the start: Jeremy Corbyn made our opposition loud and clear in his immediate budget response, and Labour MPs hammered the same message home over the next few days. Opposition came from all sides of the house, and from business organisations like the Federation of Small Businesses, leaving the Tory leadership completely isolated.
The chancellor’s climbdown will be a huge relief to all those self-employed workers and businesspeople, earning as little as £8,000 a year, who faced a serious increase in their tax bill at a time when average pay for the self-employed has fallen dramatically – their average earnings are now just £12,480 a year.
This is the third Tory budget in a row that has resulted in a major U-turn
This was not a progressive measure: the tax hike would be a larger proportion of income for someone on £18,000 than it would be for someone on £80,000. Nor did it arrive with an improvement in the benefits and conditions offered to those in self-employment, which remain substantially worse than those in employment. And in the context of the government’s £70bn of tax cuts to corporations and the super-rich, hammering the self-employed was plainly unfair.
Perhaps most of all, it illustrates just how out of touch this government is. Perhaps if Hammond – a millionaire – had spent a little more time thinking about the consequences, and a little less time writing jokes for his budget speech, he would have realised this. But if he was unable to notice that a £2bn additional tax burden for low and middle earners was grossly unfair, it was surely up to the prime minister and the cabinet to step in. But Theresa May hailed the tax hike as “fair”.
They and the chancellor now face serious questions: when did they become aware of the proposed change? They must have been, since the Treasury trailed it over the weekend before the budget. And did they not think to intervene, block the measure, and save the worry for millions of families?
This is the third Tory budget in a row that has resulted in a major U-turn: 2015 saw the tax credits shambles, with cuts in the budget reversed by the autumn statement. In 2016, they reversed cuts to personal independence payments for people with disabilities. Now this. In every case, it was Labour opposition, along with that from across civil society, that forced the U-turns.
And in every case we have been left with significant black holes in the budget as a result of the Tories’ economic incompetence. The chancellor has promised to fill his £2bn gap by the autumn. But clarity is needed before then. The additional money was intended to pay for additional social care funding. Social care under the Tories has already suffered from £4.6bn of cuts, leaving the system on the brink of collapse, with more than a million frail and elderly people being denied access to the care they need. So it is essential that Hammond makes clear how this £2bn of missing funding will be made good. It is critical that he does so not by imposing further cuts on our public services, whether the NHS or schools, and nor do we wish to see further unfair stealth taxes on low and middle earners. The chancellor could choose instead to reverse the cuts being made to taxes on big corporations or the super-rich.
Above all else, on a day when Brexit secretary David Davis announced he had made no economic assessment of Britain leaving the EU without a trade deal, it is abundantly clear that this is a government that cannot be trusted with the nation’s finances. And it is a government prepared to threaten workers, the self-employed, and small businesses with tax hikes even as it slashes taxes for corporations and the super-rich. Labour would make different choices – reversing tax cuts for big corporations and the super-rich, and investing for the future, while always balancing day-to-day spending.