Self-employed tax hike 'aimed at creating fairer system'

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Plans for a £2 billion tax hike on the self-employed is about "creating a fairer and more sustainable system", according to a government minister.

Defending the controversial proposal in the Chancellor's recent Budget, Tory frontbencher Baroness Neville-Rolfe claimed some of the growing number of self-employed were driven by the tax advantages.

The Treasury minister insisted the system was not sustainable, arguing the lower rates paid by the group were costing the public purse more than £5 billion a year.

Philip Hammond has been under mounting pressure to reverse the planned 2% hike in Class 4 National Insurance Contributions (NIC), in the face of concerns raised by Conservative backbenchers.

The Government came under further criticism during a debate on the Budget in the House of Lords, with the Conservative administration accused of "broken promises" having pledged not to raise taxes on working people.

The furore surrounding the proposal was referred to by Lady Neville-Rolfe during her opening remarks, when she told peers: "This is about creating a fairer and more sustainable system."

She argued some 60% of self-employed people on the lowest incomes would gain from the planned changes and pointed out the legislation would not be introduced until the autumn.

The minister added: "It is also a fact that within the current system the self-employed, who represent 15% of the British workforce, pay a much lower rate."

While there were historical reasons for this, she added: "But it is telling that the number of self-employed had increased markedly in recent years.

"Now some, I'd say not all of these newly self-employed, are motivated by the tax advantages and with that trend set to continue it is simply not a sustainable way to fund the benefits self-employed people receive.

"Lower rates paid by the self-employed, some of whom are on very high incomes, are forecast to cost our public finances over £5 billion this year alone."

But Labour peer Lord Livermore, a former adviser to both the Blair and Brown governments, said: "This was a Budget of broken promises that has left Britain's economy weaker, less resilient and unprepared as we approach the biggest challenge faced by our country in decades.

"It contains no plan to deal with the difficult journey that now lies ahead, but it breaks binding manifesto commitments on our nation's finances, on working people's incomes and our ability to trade in the biggest market in the world."

He pointed out both the Prime Minister and Chancellor had stood on an election manifesto that pledged not to raise national insurance contributions.

Lord Livermore argued the proposed rise would cost 2.5 million people an average of £240 a year.

He also said taking the UK out of the single market was an "act of national self harm".

"In this Budget we begin to see the likely consequences of this decision. An economy in decline and an economy ill-prepared for the very real challenges that now lie ahead," he added.

Labour peer Lord Desai said: "Self-employment is a tax dodge.

"It has been a tax dodge since my friend Ken Livingstone became a company and started paying himself.

"Now a good socialist like Ken Livingstone discovered 15 years ago that it paid to dodge taxes."

He argued the self-employed should not be held up as "the backbone of society" as they were "just tax dodgers".

"Tax dodgers ought to be treated as tax dodgers," he added.

Former Treasury permanent secretary and independent crossbencher Lord Macpherson of Earl's Court said that after working on 34 Budgets if there was any pattern "those that attracted the greatest opprobrium on the day turned out most sensible with hindsight".

He recalled urging Tory former chancellor Lord Lawson to raise NI on the self-employed over 30 years ago and getting a "predictably dusty response" because it was regarded as a "no go area".

Lord Macpherson said: "I hope it will be possible for the Chancellor to stick to his guns but I fear it will not be."

Tory former minister Lord Willetts also backed the Chancellor's move on NICs saying there had been "an increasing tendency for companies to try to shift their employees into self-employed status to save on employer NICs".

He warned this had produced a "significant and growing gap" in NI revenue.

Cobra beer founder and independent crossbencher Lord Bilimoria said the plan to increase NI payments for the self-employed was "breaking a manifesto pledge".

He added: "It sends out the wrong perception...for a Conservative government that's known to encourage entrepreneurship.

"It really sent out a very negative message."

Ministry of Sound founder Lord Palumbo, a Liberal Democrat peer, said he understood the need for economic caution but urged Mr Hammond to show a "bold spirit".

He said: "The Chancellor's job isn't just to manage competently and let borrowing and other events take their course, but to meet the problems of Brexit, health and welfare funding, and the national debt with courage and determination.

"To put forward new ideas, which inevitably involve risk and accept that some will fail."

He added: "I appeal to the minister to subtract caution and add a little more boldness to the Chancellor's thinking."

Responding to the debate, Lady Neville-Rolfe said: "This is a prudent and fair Budget with investment in skills, infrastructure and social care and with the longer term perspective we need for sustained success."