Theresa May has rejected accusations that she had broken a manifesto pledge on tax rises as she faced a growing rebellion from Tory MPs.
The Prime Minister refused to back down over the controversial rise in National Insurance contributions for the self-employed, but announced a series of concessions to buy time before the policy faces a Commons vote.
Senior Conservatives including a minister and Government whip denounced the key pillar of Philip Hammond’s Budget and said they would seek to overturn it when it comes before Parliament.
The Telegraph has learnt that the leader of the mutiny, the MP for Berwick upon Tweed Anne-Marie Trevelyan, is in the process of drafting an amendment designed to kill off the proposed increase, which has the backing of 30 Tory MPs.
The rebels claim 100 Tory MPs will either defy the whip or abstain if the NI tax rise for 2.5 million people is put to a Commons vote.
Although Mrs May and her Chancellor were publicly insisting the two per cent rise in NI payments for the self-employed was “fair” and would not be reversed, the scale of the backlash raises serious doubts as to whether the Government can make it law.
It is the biggest crisis faced by Mrs May since she became Prime Minister in July, and one of the worst Budget calamities of modern times.
Guto Bebb, a whip and minister in the Wales Office, said the Government should “apologise” to voters who believed the promise not to raise taxes made in the 2015 manifesto, while the Tory peer Lord Tebbitt described the Budget as “a dog’s dinner”.
Mrs May, in Brussels for an EU summit, remained defiant on Thursday night, saying the Government had been “very clear” that its tax promise only applied to Class 1 NI contributions, paid by employed people, despite no such distinction being made in the manifesto.
She added: “No amendments or concerns were raised at the time.”
She said that before the NI rise faces a Commons vote later this year the Government would publish a paper detailing better pension, maternity and parental rights for the self-employed.
But one Tory rebel dismissed the package as “not enough”, saying her response to the escalating row “was not going to wash” and that it would “rumble on” throughout the summer.
Unlike George Osborne’s infamous “pasty tax” and Gordon Brown’s pension rise offering of just 75p, the NI increase was the central announcement of Mr Hammond’s first Budget.
His decision to press ahead with a policy for which he was accused of breaking a key Tory manifesto pledge prompted disbelief among many in his party, raising questions over his judgment and his future as Chancellor.
Already facing criticism from sceptical backbenchers over his pessimistic approach to Brexit, Mr Hammond’s reputation as a safe pair of hands has been left in tatters.
The last Conservative chancellor to attempt a direct tax rise, Norman Lamont, was forced out of office within weeks, as Mr Hammond pointed out in Continued from what now seems like an ill-timed Budget joke.
The speed and intensity of the backlash also reflected badly on Mrs May’s political judgement.
Iain Duncan Smith, the former Tory leader, urged Mrs May and the Chancellor to “reflect” on the decision before the autumn Budget, adding: “I would like to see this kept under review.”
Changes to National Insurance are subject to separate legislation, leaving the hike vulnerable when it passes through Parliament later this year.
While the rest of the Budget is likely to be passed with little difficulty, in keeping with tradition, the NI changes could be picked off by opponents.
Sources close to Mr Hammond told the Telegraph he is considering a full-scale revision of the tax system for the self-employed, enabling him to drop his plans for class 4 NI contributions as part of a wider review.
As the blame game began on Thursday, Mr Hammond blamed Brexit for having to introduce the unpopular tax change, and was said to feel let down and “frustrated” over the lack of support shown to him by Mrs May.
A source said: “There is real frustration in the Treasury about this. No 10 want the spending but they aren’t prepared to stand up for the decisions that have to be taken to pay for it.”
Both the Chancellor and Mrs May refused to accept it broke the manifesto pledge.
They both insisted that it had been made clear that the promise applied only to class 1 contributions, payable by employees, despite no such distinction being made in the manifesto.
Mr Hammond, who spent much of the day in the West Midlands, discussed the crisis with the Prime Minister by telephone, and when Mrs May arrived in Brussels for an EU summit she avoided the media as she shunned the red-carpet entrance used by other leaders.
Tory MPs predicted that the crisis would end any chance of a snap election, while grassroots campaigners in marginal seats with high numbers of self-employed workers suggested the issue could be decisive.
An analysis by the Telegraph showed that 11 key marginals would be at risk, enough to wipe out the Conservatives’ majority.