Even by the standards of recent budget U-turns – and there have been quite a few of those – the one performed on Wednesday by Theresa May and Philip Hammond takes some beating. Seven days after announcing an increase in national insurance contributions for the self-employed, the prime minister and the chancellor bent the knee on Wednesday morning by scrapping it. An about-face is rarely good for a political reputation. But this was an about-face on both a fiscal measure worth £2bn that played a prominent role in last week’s budget, and on a philosophical issue about fairness that is close to the heart of Mrs May’s inclusive conservatism.
The U-turn on NICs tells us where power lies in Mrs May’s party. It makes clear that power does not, after all, lie with her to the degree some have assumed. A leader who has been talked up as one of the strongest prime ministers of recent times first had to pause a relatively minor fiscal measure – £2bn is not a vast sum in the context of government spending – and then ordered an abject retreat.
Once again, parliament has proved itself much more responsive to the alleged plight of the relatively well-off than to the squeeze on benefits for the relatively poor. Tory MPs who have put themselves on the line to defend the measure are entitled to feel angry. The climbdown reveals that this is a government imprisoned by a minority of its backbenchers and by the Daily Mail, just like the last one was under David Cameron. Mr Hammond has exposed just how far a Conservative government lacks the strength to impose its will on its own party. Last week, the Tory press raged against the increase. This week, some MPs told the 1922 committee it would not fly. Now it has been scrapped.
Much of this, perhaps maybe all of it, is ultimately about Brexit. The in-house critics, almost all of them ardent Brexiters, have a particular interest in doing all they can to undermine the chancellor, whom they see as the most senior of the diehard remainers on the front bench. The rightwing press has little love for him either. The “screeching embarrassing U-turn” on the self-employed that was announced in a letter to all MPs on Wednesday morning is a reminder that everything in the May government’s agenda is subordinate to holding the party (and the press) together over Brexit. This now includes tax fairness.
In any other context, the NICs rise was the right thing to do – and it will almost certainly be done after the next election. The chancellor was constrained by an irresponsible and opportunist pledge in 2015 not to raise income tax, NICs and VAT. But the growth of the gig economy is undermining the tax base that makes social goods and wages like the NHS and maternity rights affordable. Increases in NICs were not, as the press and the small-state Tories pretend, a blow to so-called risk-takers. They were in fact a challenge to those, often very well-off, who avoid their fair share because it can be tax advantageous. It all left Mr Hammond in the hapless position of saying the increases were the right thing to do while announcing that he was not going to introduce them.
Mrs May has been prime minister for nine months. Already she has retreated on workers on boards and reform of the housing market, issues that appeared encouragingly close to her heart. Now this. Mrs May is weakened by it. But Mr Hammond is badly wounded. The chancellor’s authority is so diminished he may even become a political liability.
Only last week, a Guardian-ICM opinion poll showed Theresa May and Philip Hammond with a 31-point lead over Jeremy Corbyn and John McDonnell on the issue of economic competence. Mr Corbyn was lacklustre, to put it generously, in his Commons response to the NICs U-turn. If that lead is not seriously dented next time the pollsters ask the same question, and if even a humbled and damaged Conservative chancellor enjoys more confidence than Labour, then Labour really will need to worry.