Tax hike for SMEs comes in for wide criticism

Chancellor Philip Hammond is facing growing pressure to back down on a £2 billion National Insurance hike for the self-employed, a move which would hit SMEs up and down the country.

One strong opponent is Mike Cherry, chairman of the Federation of Small Businesses, who said: “The National Insurance rise to 10% next year and 11% in 2019 should be seen for what it is – a £1 billion tax hike on those who set themselves up in business. This undermines the government’s own mission for the UK to be the best place to start and grow a business, and it drives up the cost of doing business. Future growth of the UK’s 4.8 million-strong self-employed population is now at risk. Increasing this tax burden, effectively funded by a reduction in corporation tax over the same period, is the wrong way to go.

“The genuinely self-employed are fundamentally different to employees – they are the risk takers that spearhead growth and productivity in our economy. They need help and support from government given the spiralling costs of doing business, not additional tax burdens.

“Class 4 National Insurance Contributions (NICs) will apply from about £8,000 to £45,000 in profits. Millions of self-employed will now face this tax hike, including plumbers, hairdressers, designers, musicians and many others in all our local communities. There are many areas where the self-employed don’t receive the same provision as employees to Government funded benefits. Self-employed people also face higher barriers to entry, for example, in relation to access to income protection or mortgages.”

Former work and pensions secretary Iain Duncan Smith added his voice to calls for a rethink. "I would like to see this kept under review ... I would like to see the ball kept in play," he said. "This doesn't land until next year, so there is plenty of scope to look at how this actually affects them and to listen to business representatives."

Opponents of the change, which will cost 2.5 million self-employed people an average £240 a year, argued it was in breach of a 2015 manifesto promise not to increase National Insurance contributions for five years.

Hammond defended the move, telling LBC radio: “This is a fair measure, it is a modest measure. Half of the money raised will come from people in the top 20% of income earners. Nobody earning less than £16,250 will pay any more National Insurance contributions and 60% of self-employed people will see a reduction in their National Insurance contributions. This is a fair and appropriate measure.”