The Government must think again about its National Insurance hike

Telegraph View
Chancellor of the Exchequer, Philip Hammond, prepares his speech in his office at the Treasury ahead of his 2017 budget annoucement, in London, Britain, March 7, 2017.  - REUTERS/Carl Court/Pool

It is hard to believe that a Tory government would make the mistake that Philip Hammond made in his Budget. Not only is it unnecessary and wrong to raise taxes on the self-employed, but it also contradicts the Tory tradition and, crucially, its 2015 manifesto. This Government may have a new prime minister, but its majority was elected on a clear pledge not to raise direct taxes. If it does not wish to honour that pledge then logic dictates that it seeks a new majority through an election. Otherwise, it must stick to its prior commitments and think again about this increase.

Those with a keen sense of history would take note that Tories who raise taxes do not tend to perform well in general elections.

The outcry has been near-universal and its intensity striking. It is hard to remember a Budget that has been so panned by so many. In his speech, Mr Hammond sold the increase as an attempt to achieve fairness – implying that people enter self-employment for the tax perks. This betrayed an outdated, Brownite approach to tax. The New Labour philosophy, which the Tories are supposed to challenge, was that any increase in wealth was a new revenue stream for the state to tap. The Tory approach – historically, philosophically – should be to encourage risk takers and get out of their way.

The Conservatives should not forget that the self-employed are a critical part of their electoral coalition. These are the people who strike out on their own, taking enormous risks, working very long hours and enjoying fewer benefits than others. If the tax system in any way encourages them, that ought to be regarded as a good thing. If there is a problem in the gap between the tax rates of employees and the self-employed, then a tax rise should not be used to close it. A tax cut would be more appropriate.

Tory prime ministers who do this are rewarded twice over. Once, by increased income. When Labour’s higher rate of 50p was cut to 45p by George Osborne, it resulted in more income for the Treasury. A tax-cutting Tory government benefits a second time by a bump in the polls. Voters like the idea of keeping more of their own money. Margaret Thatcher built three election victories on this idea. Mr Osborne and David Cameron became serious contenders for Downing Street when they pledged to cut inheritance tax. And the winning 2015 manifesto contained a promise that helped on election day: “We will not raise VAT, National Insurance contributions or Income Tax.”

Budget winners and losers

In other words, this Budget is a potential signpost for how the country will be governed under Theresa May and Mr Hammond. What will the abiding philosophy be? We know that the goal is, rightly, to help the Just About Managings. But does that mean by enlarging the welfare state by raising taxes or by reducing public expenditure and letting workers keep more of their hard earned pay? The Jams include many self-employed people, and not just the old-fashioned cliché of White Van Man. Everything from digital pioneers to cake makers fall into that growing band of entrepreneurs: 4.8 million of them now, many living in marginal constituencies. If Labour dumped Jeremy Corbyn and got itself a competent social democratic leader, it could make a pitch for such people – as it did with tremendous success in 1997.

How the Government responds to criticism of the National Insurance rise is going to be a crucial test of what it stands for. The Treasury is doubtless arguing that the Chancellor should stick to his guns. But those with a keener sense of history would take note that Tories who raise taxes do not tend to perform well in general elections.

The Government made the right moves in many areas, and its proposed revolution in grammar schools and training is splendid. It must show the same energy and innovation when it comes to taxes. There is a chance to put the matter out to a broader review of approaches to self-employment – in which case the Government will find that deregulation of self-employment and lower taxes are the best way to tap into this revolution.

Below the radar of the state, people are taking matters into their own hands and building a new economy. The Government must help them.

By using Yahoo you agree that Yahoo and partners may use Cookies for personalisation and other purposes