In the Budget, the Chancellor set out the Government's plan to close the gap in National Insurance contributions (NICs) between employees and the self-employed (Class 4 contributions).
Recently there has been a sharp rise in self-employment which appears to be driven largely by differences in tax treatment. HMRC estimates the cost to the public finances of this trend is about £5 billion in this year alone. This represents a threat to our tax base and, consequently, a threat to the funding of our public services.
Since the Budget, however, the question of whether commitments made in the 2015 manifesto are being met has been raised a number of times. The Government legislated for locks on National Insurance Contributions in the National Insurance Contributions (Rate Ceilings) Act 2015 and it was made clear that this Act only applied to Class 1 contributions (employer and employee). The measures in the Budget therefore fall within the constraints set out by the tax-lock legislation and the spending ring-fences. In light of debates held since the Budget, however, the Government has decided that compliance with the "legislative" test of the Manifesto commitment is not adequate.
The Chancellor has decided in light of the views expressed by both MPs and the public not, therefore, to proceed with the Class 4 NIC measures set out in the Budget. Other ways to create greater levels of fiscal balance and equality will be considered and pursued.