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NIC outrage?

9th Mar 2017
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In what must be the dullest political speech in living memory, Philip Hammond still managed to create a storm of indignation as he tried to keep the deficit within manageable proportions.

Am I missing something? The papers of both the left and the right are in uproar this morning over the Chancellor’s announcement that National Insurance Contributions for the self-employed will increase by 1% from April 2018 and a further percentage point the following year.

There is no question that this is in direct contravention of his party's manifesto pledge prior to the last general election little more than 18 months ago.

So what is everyone making such a fuss about? This is only equivalent to saying that a delivery company has broken an appointment, a giraffe is tall or, and this is never likely to happen in real life, a footballer is diving in the penalty box.

Today's politicians regard manifestos as a means to an end, quickly forgotten once they are in office and just as well.

The days when occupants of parliaments on either side of the Atlantic (or in Europe for that matter) had moral standards to uphold are long gone and possibly never existed.

The irony is that the only reason why Hammond introduced this measure was to appease his voting constituency, getting some quick cash from people that he thought would be vulnerable but unloved.

Nobody in employment is going to be fussed about this, pensioners, students and the unemployed couldn't care less and therefore the only people affected are the self-employed.

I can easily break those down into two categories. Those who are strikingly well off will hardly notice an extra 1% charge on their fat profits. It is only the guys earning relatively small amounts who are likely to be hard-hit and clearly Hammond and his party decided that they do not matter.

Judging by the papers today, white van man is far more influential than the Chancellor of the Exchequer or his Prime Minister realised.

Those who missed the speech will also be unaware that he took a pop at professionals who operate through LLP structures, which obviously includes accountants. We may care very little about the fate of most self-employed people but a Chancellor who does not respect and esteem the value to society of the respected professions (i.e. us) deserves to find himself on the back benches in the very near future.

Replies (14)

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By DotasScandalDotOrg
09th Mar 2017 11:29

There is an outrage because this time it's become evident to everyone that they are out to skin the self-employed, while continuing to favor their beloved megacorporations. Gauke and the previous Chancellor managed to pull APNs off. and martyr tens of thousands of self-employed to general indifference. They though they could just do more of the same and no one would say a thing. Wrong judgement.

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Replying to DotasScandalDotOrg:
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By johnjenkins
09th Mar 2017 14:36

I see this as just another way of getting rid of the small self-employed. If this is the uproar just over NIC just wait till the impact of MTD fully hits the small business. I see annihilation for the Tories at the next election. Perhaps we should all vote for the SNP.

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Replying to johnjenkins:
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By DJKL
09th Mar 2017 16:39

Please don't, you will just encourage them.

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By David Heaton
09th Mar 2017 16:51

This change has been coming ever since George Osborne announced the abolition of Class 2, which will save self-employed earners £150 pa, and the equalisation of state pension rights in April 2016.

Losing Class 2 will deprive the NI Fund of £380m pa. Since the NI Fund income is spent 97% on paying state pensions (3% is for ESA, SMP and a tiny amount of JSA), and pensioner numbers are rising (as they fail to die as quickly as they used to), it was obvious the hole had to be plugged.

More than that, though, there is the issue of Uber, Deliveroo, etc, about which there has been much righteous indignation. One of the key drivers (no pun intended) in using self-employed workers is the absence of employer NICs. I'm frankly surprised Philip Hammond didn't go further than two 1% increases in Class 4.

I'm going to be deliberately provocative. Why shouldn't the self-employed pay equitably towards the social security system? They pay secondary Class 1 on the wages they pay to staff, but only 9% (+1% 2017 +1% 2018) on their own profits above the threshold. Yet, now that we're all going to earn exactly the same state pension (97% of your NI spend, once the NHS element is taken out), they pay less than half of the amount paid for and by an employee.

In the USA, where employees and the self-employed earn the same pension (under FICA and SECA), the self-employed pay the equivalent of the employer's NI as well as their own personal contribution. It doesn't get more equitable. The social security system is just that. Not a tool for their Treasury Secretary to milk workers for other spending. And their state pension is better than ours.

The differential between Class 1 primary and Class 4 was originally roughly equivalent to the contracting out rebate enjoyed by an employee in a COSR pension scheme, because employees got a basic pension plus SERPS/S2P, while the self-employed got just the basic pension. It made sense until that differential was abolished last year.

Gordon Brown sowed the seeds of the current discontent by reducing Class 2 to £2 pw, to win votes, when there was no financial crisis and there were fewer worries about the deficit. If it had stayed at roughly the same level as Class 3, it would now have been £15 pw instead of £2.85 (2017-18) - £675 pa or so more than it is. The 2% Class 4 hike puts it back to the pre-Gordon level. It's always easy to give money away, always hard to claw it back, and voters' memories are short, just like some political careers.

When I was self-employed, as opposed to a director of a PSC, I was very happy to pay £2-odd per week to 'earn' my state pension, and I felt lucky to be a beneficiary of a subsidy from the employer population. With 35 years already on the NI clock, I'm a little more detached. Since the Class 2 abolition will ensure that poorer self-employed workers will not lose out (the Chancellor said profits up to £16,250 were the breakeven), I have to say the policy change makes sense to me.

And that's even if it is indeed a crystal clear breach of a manifesto commitment: whatever the Chancellor claims, it was stated before the election that NICs would not be increased, and after the first budget and the publication of the NIC (Rate Ceilings) Bill it was clear that self-employed NICs were in the crosshairs, as they were never included in the NIC lock bill. Who would have thought it, eh - a politician who changes policy after an election?

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By chatman
09th Mar 2017 18:21

It's what they call a race to the bottom. Instead of improving things for the unfairly treated, you bring everyone down to the same level.

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By Eric_Timms
10th Mar 2017 10:12

I thought the equation was lower NIC for not receiving benefits, e.g. sick pay?

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Replying to Eric_Timms:
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By David Heaton
10th Mar 2017 16:47

Eric
It used to be like that, a long time ago. Now, employers bear the cost of SSP, rather than it being a state benefit. The self-employed are actually better off, because they claim ESA from the DWP on the back of their Class 2 NICs. And employers, not the state, bear the cost of holiday pay, so there's parity there, too.

SMP is the exception. Employed earners, and the self-employed who pay Class 2, get 33 weeks at the flat rate (employees might get less, if 90% of their average earnings is less). The self-employed get another six weeks at the flat rate, but employees get six weeks at 90% of average earnings in the reference period. Those who earn on average more than £156 pw get more than the flat rate. That is the only real difference nowadays.

SMP, SAP, SPP and SSharedPP are reimbursed out of NI: 92% for large employers, 103% for small ones. The NI Fund pays out about £2.5bn for this, compared with £97bn for pensions.

So the self-employed are indeed favoured by the current regime, in social security terms. Universal credit is a different matter, but that has nothing to do with NI, as it is funded by tax and is means-tested.

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By KateR
10th Mar 2017 11:05

I am puzzling over the question of how self-employed with profits of less than the Class 4 threshold will pay any NIC. In last tax return round (2015-16) if your profit was under Class 2 threshold you could opt to pay voluntarily - it said so on the tax return. But, after filing, a few clients then received letters from HMRC saying that it 'was too late to pay Class 2 NIC' and so their tax returns had been amended.

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By Ammie
10th Mar 2017 12:29

I don't quite understand the outrage. Yes, there will be more to pay, what's new? Yes, it's not welcoming, what's new? How often is there less to pay?
It does make sense that the contributions should reasonably be on level terms with employees.
What I would question is who decided on the original plan to charge differing contributions in the first place? The short sighted government, who decades later decide its "not fair". There is more than a little truth in that they are making it up as they go along. All governments have a suck it and see approach.
And what about employer's NIC? What's that for? We do all the work anyway. Do they really think that creating lists of charges and taxes looks better than one big "thump" to cover all?
A bit like saying it's on average 60p a day increase rather than £219 per year. They might as well quote it per the hour the figures will look even more trivial!

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Glenn Martin
By Glenn Martin
10th Mar 2017 14:25

What I noticed last night mentioned several time on the news that this was done to "simplify" tax system.

Simpler for who?

How does raising the rate of tax make it more simple for those that are effected by it.

Perhaps they might increase PAYE to 25% as it will be more simple for people to divide by 4 than it is 5.

This government really takes the electorate for fools but as we have no opposition to keep them in check they can do so for years to come.

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By ChrisScullard
11th Mar 2017 22:12

It seems blindingly obvious to me that in recent budgets those that changes made in taxation are all about winning votes and fairness has little to do with it.

Let's look at who's been affected:

Private landlords - generally unpopular with the majority of the electorate as taking the blame for the housing market situation. Not enough of them (who may change their vote away from Conservative) to change the outcome of an election.

'Fat Cat Business Owners' - Business owners are generally unpopular with the electorate as the media makes out we all make a fortune and pay no tax. So dividend tax, etc popular with majority of the electorate. Not enough of them (who may change their vote away from Conservative) to change the outcome of an election.

Self employed - fact they pay less NI generally unpopular with most of the (employed) electorate, now they actually know about it. Not enough of them (who may change their vote away from Conservative) to change the outcome of an election.

Those with decent pension pots - hitting these people generally popular with most of the electorate who will never get anywhere near a £1m pension pot. Not enough of them (who may change their vote away from Conservative) to change the outcome of an election.

However I don't recall much (other than tobacco & alcohol duty rises) that would cause much taxation pain to the majority of the electorate (i.e.: employed and pensioners).

I'm sure I've missed things here but it looks quite clear that most moves to increase the tax take are levied on small groups that are largely unpopular with the majority of the electorate and who's numbers aren't enough to change the outcome of the next general election.

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Replying to ChrisScullard:
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By chatman
12th Mar 2017 09:52

ChrisScullard wrote:

It seems blindingly obvious to me that in recent budgets those that changes made in taxation are all about winning votes and fairness has little to do with it.

Let's look at who's been affected:

'Fat Cat Business Owners' - Business owners are generally unpopular with the electorate as the media makes out we all make a fortune and pay no tax. So dividend tax, etc popular with majority of the electorate. Not enough of them (who may change their vote away from Conservative) to change the outcome of an election.

I don't think the general public equate most business owners with the "fat cats", a term used to describe those such as bankers and owners of the privatised infrastructure.

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Replying to chatman:
By ChrisScullard
12th Mar 2017 17:55

Chatman, you might be right, but do you think the average employee would shed a tear over their boss, or any business owner or anyone receiving significant dividends having to pay some/more tax on their dividends?

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Replying to ChrisScullard:
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By chatman
12th Mar 2017 18:41

Yes, I suppose when most people think of dividends, they think of better-off people getting them.

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