Statement (Commons and Lords) on Class 4 National Insurance Contributions - March 15

The Chancellor of the Exchequer (Mr Philip Hammond) 

With permission, Mr Speaker, I wish to make a statement on national insurance contributions paid by the self-employed.

As I set out in the Budget last Wednesday, the gap between benefits available to the self-employed and those in employment has closed significantly over the last few years. Most notably, the introduction of the new state pension in April 2016 is worth an additional £1,800 to a self-employed person for each year of retirement. It remains our judgment, as I said last week, that the current differences in benefit entitlement no longer justify the scale of difference in the level of total national insurance contributions paid in respect of employees and the self-employed.

Right hon. and hon. Members will be aware that there has been a sharp increase in self-employment over the last few years. Our analysis suggests that a significant part of that increase is driven by differences in tax treatment. Her Majesty’s Revenue and Customs estimates that the cost to the public finances of this trend is around £5 billion this year alone, and the Office for Budget Responsibility estimates that the parallel increase in incorporation will cost more than £9 billion a year by the end of the Parliament. That represents a significant risk to the tax base, and thus to the funding of our vital public services.

The measures I announced in the Budget sought to reflect more fairly the differences in entitlement in the contributions made by the self-employed. The Government continue to believe that addressing this unfairness is the right approach. However, since the Budget, parliamentary colleagues and others have questioned whether the proposed increase in class 4 contributions is compatible with the tax lock commitments made in our 2015 manifesto.

Ahead of last year’s autumn statement, the Prime Minister and I decided that however difficult the fiscal challenges we face, the tax lock and spending ring fence commitments we have made for this Parliament should be honoured in full. I made that clear in my autumn statement to this House. As far as national insurance contributions are concerned, the locks were legislated for in the National Insurance Contributions (Rate Ceilings) Act 2015. When the Bill was introduced, it was made clear by Ministers that the lock would apply only to class 1 contributions. The measures I set out in the Budget fall within the constraints set out by the tax lock legislation and the spending ring fences. However, it is clear from discussions with colleagues over the last few days that this legislative test of the manifesto commitment does not meet a wider understanding of the spirit of that commitment.

It is very important both to me and to my right hon. Friend the Prime Minister that we comply with not just the letter but the spirit of the commitments that were made. Therefore, as I set out in my letter this morning to the Chair of the Select Committee on the Treasury, my right hon. Friend the Member for Chichester (Mr Tyrie), I have decided not to proceed with the class 4 NICs measures set out in the Budget. There will be no increases in NIC rates in this Parliament.

For the avoidance of doubt, and as I set out in the Budget, we will go ahead with the abolition of class 2 national insurance contributions from April 2018. Class 2 is an outdated and regressive tax, and it remains right that it should go. I will set out in the autumn Budget further measures to fund, in full, today’s decision.

I undertook in the Budget speech to consult over the summer on options to address the principal outstanding area of difference in benefit entitlement between the employed and the self-employed: parental benefits. We will go ahead with that review, but we now intend to widen the exercise to look at the other areas of difference in treatment, alongside the Government’s consideration of the forthcoming report by Matthew Taylor, chief executive of the RSA, on the implications for employment rights of different ways of working in a rapidly changing economy. Once we have completed these pieces of work, the Government will set out how we intend to take forward and fund reforms in this area.

Reducing the unfairness of the difference in the tax treatment of those who are employed and those who are self-employed remains the right thing to do, but this Government set great store in the faith and trust of the British people, especially as we embark on the process of negotiating our exit from the European Union. By making this change today, we are listening to colleagues and demonstrating our determination to fulfil both the letter and the spirit of our manifesto tax commitments. I commend this statement to the House.

John McDonnell (Hayes and Harlington) (Lab) 

This is chaos. It is shocking and humiliating that the Chancellor has been forced to come here to reverse a key Budget decision announced less than a week ago. If the Chancellor had spent less time writing stale jokes for his speech and the Prime Minister less time guffawing like a feeding seal on the Treasury Bench, we would not have been landed in this mess.

Let us be clear: this was a £2 billion tax hike for many low and middle earners, and a clearcut and cynical breaking of a manifesto promise. Sickeningly, at the same time that the Chancellor was cutting taxes for the rich and corporations, large numbers of self-employed people have been put through the mangle over the past week, worried about how they would cope with this tax increase, yet today there is not a word of apology. Nobody should be too arrogant to use the word “sorry” when they blunder so disastrously.

Let me thank all those who helped to force this reversal. My right hon. Friend the leader of the Labour party was the first to raise the matter in his response to the Budget. Labour MPs, many other Members across the House, the Federation of Small Businesses and several trade unions forced the Chancellor to see sense, but this blunder has consequences that he now has to address. The £2 billion that would have been raised was to go some way to tackling the social care crisis. We need to know where these desperately needed funds will come from now. We need guarantees from the Chancellor that no working people will be hit, either now or in the autumn statement, with stealth or other tax rises, and that there will be no further cuts to public services to pay for this blunder.

The Prime Minister and the Cabinet would have been briefed on the contents of the Budget in advance. Did the Prime Minister or any Cabinet Member raise their concerns with the Chancellor before he announced the measure? The Chancellor has announced a review. We need him to set a clear deadline for that review, and to give a commitment that its findings will be reported and debated on the Floor of this Chamber. We need him to address the real issues facing the self-employed: the scourge of bogus self-employment; the exploitation that goes on under that guise; the pressure from large corporations to reduce costs relating to the self-employed unrealistically; the problem of late payments; the lack of access to maternity pay; no paternity pay; no adoption pay; no sick pay; no compassionate leave; and no carer’s leave. That is the real agenda that should have been addressed last week, not tax hikes.

We welcome this reversal, but we now need an honest and forthright commitment that the self-employed agenda will be addressed. These people are the engine of our economy. They deserve to be respected, not attacked in the way they were seven days ago.

Mr Hammond 

To echo what my right hon. Friend the Prime Minister said in Question Time, I am rather reluctant to take lessons from the right hon. Gentleman on anything except, perhaps, chaos theory; he certainly knows something about that. He talks about being forced to make a decision. We have listened to our colleagues and the voices of public opinion. In my view, that is how Parliament should work. We listen to what our colleagues say and make our decisions based on that. As I said to the House a few moments ago, we remain clear that the issue needs to be addressed. We have recognised that there is a legitimate view that the commitments that were made need to be interpreted widely; we have said that we will interpret them in that way and not go ahead with any national insurance contributions increases in this Parliament.

The right hon. Gentleman mentioned the leader of the Labour party, who, apart from in his performance today at Prime Minister’s questions, has scarcely mentioned class 4 national insurance contributions; he scarcely did so in his response to the Budget. I do not know whether the right hon. Member for Hayes and Harlington (John McDonnell) is even aware of this, but the Labour party actually has a self-employment commission, which it established last November. At the time it was established, the hon. Member for Oldham East and Saddleworth (Debbie Abrahams), the shadow Secretary of State for Work and Pensions, acknowledged the need to address the discrepancies in access to entitlements and the contributions that pay for them. Despite the understandable tone of the right hon. Member for Hayes and Harlington, I hope that he agrees that, on the substantive underlying issues, there is a significant degree of agreement across the House that there is a discrepancy and a threat to the tax base that will have to be addressed over time.

The right hon. Gentleman talks about additional benefits for the self-employed. Of course we will review the issues around parental benefits, as I said in the Budget—we will actually take the review wider than that—but I hope that he agrees that if additional benefits are to be made available, we will have to look at how to pay for them, and it will not be done by borrowing half a trillion pounds that the country cannot afford and our children will be left paying for.

Mr Andrew Tyrie (Chichester) (Con) 

This announcement bolsters trust in the Government’s other commitments, and removes the perception of a cigarette paper between No. 10 and No. 11, so it is doubly welcome. Does the Chancellor agree that a differential should, none the less, remain in the long run to reflect the additional risk taken by the self-employed when they are doing their job?

Mr Hammond 

In the Budget speech last week, I made very clear that we were seeking to close the gap a little. We were not seeking to equalise the contributions treatment of the employed and self-employed, as there are very good reasons why there may well need to be a gap. That is why we will look at this in the round—contributions, entitlements and the way the whole package works for the self-employed. Let us come back to this once we have completed the review, have the Matthew Taylor work and can look at the problem in the round.

Stewart Hosie (Dundee East) (SNP) 

I said last week that this decision would come back to haunt the Chancellor, and it has, but little did I expect that when it did, No. 10 and No. 11 would be briefing against each other. It is almost as if the halcyon days of Gordon Brown and Tony Blair never really went away. However, I welcome the U-turn today, not least because about 140,000 Scottish self-employed people would have been affected by it, and many of them would have earned slightly below, on or only slightly more than the average wage. I am delighted that the Scottish National party went in to bat for the squeezed middle against this Chancellor.

Today’s U-turn has all the characteristics of the pasty tax, the caravan tax and the omnishambles Budget. The Chancellor said that he would fill the gap in the autumn, and I will listen carefully to what he says then, but will he give us an assurance today that he will not simply find another clever way of dipping into the pockets of modestly paid self-employed people? More importantly, if he changes the tax or national insurance regime for self-employed people in the future, will he have proper consultation in advance with their representatives, so that they are not hit with the uncertainty that they have faced over the past week?

Mr Hammond 

On the last point, we will, of course, consult people widely over the course of the summer as we carry out the review. The hon. Gentleman will know that it is intrinsic in the Budget process that it is difficult to have any kind of proper consultation when preparing a Budget. He asked about measures in the autumn Budget. I said that all spending measures in the spring Budget would be fully funded by revenue raises or reductions in spending elsewhere in that Budget, so that it was broadly fiscally neutral. As a result of the decision I have announced today, the spring Budget is no longer broadly fiscally neutral, but I am committed to addressing that issue in the autumn. The intention remains to balance the measures that we are delivering between spending and taxation.

Mrs Anne-Marie Trevelyan (Berwick-upon-Tweed) (Con) 

I thank the Chancellor for listening to the voices of colleagues and deciding to reverse the proposals. The genuinely self-employed carry real financial risk by working for themselves. I know that a Conservative Government really want a tax system that will support risk-takers and growth-creators, so will the Chancellor commit to working over the coming months with colleagues who believe it is time to take a holistic and simplifying view on personal taxation for the self-employed that will support wholeheartedly those who build new businesses and take a risk?

Mr Hammond 

Yes, I can assure my hon. Friend that this Government will always be on the side of those who genuinely strive to take risks, to innovate, to grow businesses and to contribute in that way to the economy. However, the right hon. Member for Hayes and Harlington (John McDonnell), in his response to the statement, addressed the issue of bogus self-employment, and he is right: there is a problem of bogus self-employment. There is a problem of employers who are refusing to employ people, requiring them to be “self-employed”. There is a problem of individuals being advised by high street accountants that they can save tax by restructuring the way they work. We do believe that people should have choices, and we do believe that there should be a diversity of ways of working in the economy—we just do not believe that that should be driven by unfair tax advantages.

Mr Speaker 

Order. I remind the House that colleagues who arrived in the Chamber after the start of the statement should not stand or expect to be called. That is a very long-standing convention of the House.

Chris Leslie (Nottingham East) (Lab/Co-op) 

This is obviously an acutely embarrassing episode for the Chancellor, but will he not acknowledge that it is also quite embarrassing for those of his colleagues, including the Prime Minister, whom he sent out there to defend this breaking of the manifesto commitment? Has he already apologised to the Prime Minister and to his colleagues, or will he take this opportunity to say sorry to them from the Dispatch Box?

Mr Hammond 

I find it a bit extraordinary that that should be the hon. Gentleman’s intervention. He, after all, is the one who said that Labour would fund its £500 billion plans by doubling income tax, doubling national insurance, doubling council tax and doubling VAT. He is the one who sounded the alarm on the Opposition side.

Look, I have had extensive conversations with colleagues since the Budget, over the weekend, and in the Lobby last night and on Monday. I have had lots of discussions with the Prime Minister over the last few days, as the hon. Gentleman would expect. As he would also expect, I am not about to give the House the full detail of those private conversations.

Nicky Morgan (Loughborough) (Con) 

I commend my right hon. Friend for his statement today and for recognising what colleagues and others have been saying to him. I also commend him for recognising that the employment market in this country is changing: there are more people who are self-employed, and that needs to be addressed. Does he not think it is right that it is the Conservative party that is asking those questions about how we balance our books, rather than the Labour party, which has no clue whatever about how to pay off the deficit or pay off our debt?

Mr Hammond 

I am grateful to my right hon. Friend. We have, absolutely, recognised the view of colleagues on the crucial issue of the manifesto commitment. However, on the substantive issue of the differences in treatment of people who are employed and people who are self-employed, there is a fundamental structural challenge that will have to be addressed, and that includes the question of how we extend appropriate benefits to people who are in self-employment, so that they get the full range of entitlements, as well as contributing in an appropriate way. We are clear that the right thing to do now is to rule out any increases in national insurance contributions during this Parliament, but that does not mean that we should not do the work, carry out this review and present our findings in due course, and we will do so.

Ms Angela Eagle (Wallasey) (Lab) 

Of 28 measures in this Budget, the Chancellor has had to come in a humiliating fashion to the House today to cast away the one that actually raised money. He has just told us that £14 billion of tax revenue is at risk because of the way national insurance is encouraging people to become, apparently, self-employed, and encouraging other abuses. He has told us he is not going to deal with that in this Parliament, so what is he going to do to safeguard the tax base in the meantime, while he does his review and belatedly puts into effect the manifesto commitment on which he fought the last election?

Mr Hammond 

I have to say that that was an extraordinary contribution, because the hon. Lady cannot have it both ways or, to put it another way, have her cake and eat it. She wants me to adopt a broad interpretation of manifesto commitments and to adhere to it, and she wants me to protect the revenue base by addressing the difference in contribution treatment between the employed and the self-employed. I say to her, as I have just said to my right hon. Friend the Member for Loughborough (Nicky Morgan), that we will have to address that difference in due course. However, given the interpretation that is clearly out there of the manifesto commitment that was made, our priority now is to show that we will deliver on the spirit as well as the letter of that commitment, and we will not increase national insurance contributions in this Parliament.

Sir Oliver Letwin (West Dorset) (Con) 

I am sure my right hon. Friend is right to deal with this issue in the round, but I hope he will not allow that in any way to deflect him from the very sensible Budget judgment he made in respect of fiscal neutrality or from the need for the structural reforms he is putting forward. Did he notice, as I did, that the shadow Chancellor asked him to fill the gap without reducing spending or increasing taxes? Does he know how that could be fulfilled?

Mr Hammond 

The straight answer to my right hon. Friend is that only in the la la land that the Labour party occupies is that trick is possible. Of course, my right hon. Friend is right to draw attention to the issue, and I emphasise again my commitment in this Budget to fiscal neutrality—the right hon. Member for Hayes and Harlington (John McDonnell), of course, does not believe in fiscal neutrality.

John McDonnell 

Oh, dear me. You just, in a week, reversed a decision—

The Chancellor of the Exchequer (Mr Philip Hammond) 

The right hon. Gentleman says, “Dear me”. I repeat: he does not—[Interruption.]

Mr Speaker 

Order. We cannot have these shouting matches across the Chamber. [Interruption.] It is not for me to tell anybody to do anything. I am asking people not to do things that they should not do: shouting across the Box. I now exhort the Chancellor to continue with his response.

Mr Hammond 

Thank you, Mr Speaker.

The right hon. Gentleman does not believe in fiscal neutrality—that is a fact. He believes in borrowing £500 billion of additional money, and saddling our children and our grandchildren with that debt. However, I very much take my right hon. Friend’s advice on maintaining fiscal neutrality and dealing with the structural issue that underlies this statement.

Frank Field (Birkenhead) (Lab) 

To make up the loss in revenue, might the Chancellor consider bearing down on those employers who force their employees into self-employment against their wishes, destabilise their lives and thereby get out of paying national insurance contributions, which all good employers do pay?

Mr Hammond 

The right hon. Gentleman is right. As I have said, there is, as the economy changes shape, an increasing tendency for employers, effectively, to drive people out of employment and into what is thinly disguised employment, badged as self-employment. That is one of the issues that Matthew Taylor is looking at in his review. I have had the opportunity to have a preliminary meeting with him. We are very much looking forward to receiving his report in due course, and we will respond to it.

Jake Berry (Rossendale and Darwen) (Con) 

I declare my interest as a self-employed solicitor. I commend the Chancellor on coming to the House today and putting forward his views about changes in self-employment. Will he join me in commending the literally thousands of people across Rossendale and Darwen who go out, start businesses, make money and are self-employed? When they voted in the last general election, they knew that a Conservative Government would not only protect their tax rates, but create the economic environment in which they could start and grow their business.

Mr Hammond 

My hon. Friend is absolutely right: it is about the environment being conducive to people starting and running small businesses. I congratulate those in Rossendale who do that—who get up every morning and who are prepared to take those risks. They will now benefit from the abolition of class 2 national insurance contributions, making them that little bit better off.

Rachel Reeves (Leeds West) (Lab) 

Will the Chancellor confirm when the decision to make this U-turn was made? Is not the truth that this was the Prime Minister’s decision, not his?

Mr Hammond 

Clearly, that is the story the hon. Lady would like to believe, but, unfortunately, it is not true. As Members would expect, I have been discussing the Budget and these issues with the Prime Minister since last Wednesday, just as I have discussed them with many colleagues over the weekend, and we have had several meetings over the last few days. The final decision to make this announcement to the House was made this morning—just after 8 o’clock—and I have come here at the earliest reasonable opportunity to inform the House.

Mrs Anne Main (St Albans) (Con) 

There are 7,000 self-employed individuals in St Albans, representing 16% of the economically active. I thank the Chancellor for listening to the representations that I made in my letter to him. Those people will welcome the three-year end-of-Parliament commitment that he has made on this matter, which gives certainty. He is absolutely right to look at this issue. He is a very honourable man in coming here and honouring our manifesto today, and he should ignore the criticisms from the Opposition.

Mr Hammond 

I am grateful to my hon. Friend. I have to say that I generally find it much more fruitful listening to the advice and thoughts of my hon. Friends than listening to the comments from the Opposition.

Alex Salmond (Gordon) (SNP) 

We all noted that the Chancellor brought along the First Lord of the Treasury today for support, solidarity, counselling and hand-holding as he made his abject statement. Who first realised that the Government were in flagrant breach of their manifesto commitment—was it the Chancellor or the Prime Minister? If manifestos are now paramount and all parties must seek to implement them, will the Chancellor confirm, since he intends to go ahead with these changes, that they will appear in the Conservative manifesto at the next election so that the self-employed can vote accordingly?

Mr Hammond 

I have made a statement today about the Government’s intentions: no national insurance contribution rate increases for the remainder of this Parliament. I am not making a statement about the Conservative party’s manifesto for the next general election; the right hon. Gentleman will have to contain himself for a while on that particular issue. On the question of who first raised the issue of the manifesto, I think, to give credit where credit is due, that it was Laura Kuenssberg on the BBC shortly after my comments in the Budget speech.

Dr Matthew Offord (Hendon) (Con) 

I commend the Chancellor for coming to the House today. He is entirely correct to assert that the National Insurance Contributions (Rate Ceilings) Act 2015 applied only to class 1 contributions. I do not recall Labour’s Treasury Front Benchers at the time ever mentioning any other contributions. Once again, I thank him for coming here, because he is a listening Chancellor who will continue to listen to those on the Conservative Benches—the sensible side of the House—unlike some previous Labour Chancellors who not only did not listen to anyone but brought the economy to its knees.

Mr Hammond 

My hon. Friend is right. I did not mention this because it is not something that I particularly want to make a big issue of, but it is true that when the National Insurance Contributions (Rate Ceilings) Bill was debated in this House, Ministers made it clear that they were legislating to lock class 1 only. No amendments were tabled and no issue was raised. Indeed, the hon. Member for Salford and Eccles (Rebecca Long Bailey), who was then a shadow Treasury Minister, said at the Dispatch Box that this Bill discharged the Conservative party’s commitment on national insurance contributions in the manifesto. [Interruption.] Well, the hon. Lady might want to check Hansard.

Helen Goodman (Bishop Auckland) (Lab) 

I know that the Chancellor of the Exchequer will want an endorsement from me like a hole in the head, but I am rather disappointed because there is a lot wrong with national insurance. In the wider review, will he also look at the absurd way in which it kicks in at £8,000, well below the personal tax allowance, and at the very unfair top 2% rate?

Mr Hammond 

I am grateful to the hon. Lady for her comments. It is important to separate the two issues involved: the substantive underlying issue about the way in which national insurance contributions and entitlement to contributory benefit work, and the equally important but separate issue of the way in which manifesto commitments work. The review that we will conduct will look specifically at the differences between the self-employed and the employed, and the access of the self-employed to contributory benefits, so her suggestion is beyond the scope of that particular piece of work. However, as she especially will be aware, all these things are routinely reviewed by the Treasury in the run-up to fiscal events.

Mr Jacob Rees-Mogg (North East Somerset) (Con) 

May I thank my right hon. Friend for his wisdom in being open to changing his mind, which shows the serious-mindedness of Her Majesty’s Government; and for his propriety in telling this House first and doing it himself, not sending someone else on his behalf? May I also commend him for his singular achievement of converting a number of desiccated socialists to support for lower taxation?

Mr Hammond 

I am grateful to my hon. Friend, but what I see on the Opposition Benches these days is very often not so much desiccated socialists as dedicated opportunists.

Greg Mulholland (Leeds North West) (LD) 

This Budget was disappointing and unambitious, and is now mired in this chaos. Is it not now time to properly consider having an NHS tax specific to funding our NHS, which did not receive enough funding? As the Chancellor knows, this has the support of the majority of the British public.

Mr Hammond 

What we need to fund our NHS is a strong economy and a Government who have the political will to make the commitment that we have made to a £10 billion post-inflation increase in NHS spending. It is very nice to have a contribution from the Liberal Democrat Benches. I do not know whether that is a precursor of the Liberal Democrat manifesto for the next general election—we shall wait to see.

Anna Soubry (Broxtowe) (Con) 

I commend the Chancellor for his statement. As somebody who was self-employed for many years, I know that the current system undoubtedly needs reform, in terms of contributions and benefits, so I look forward to Matthew Taylor’s report. Given that so many of the self-employed are sole traders and micro business owners, may I urge the Chancellor to look at the great work that Angela Knight has done on how the whole system could be improved? I am very happy to have a meeting with one of his junior Ministers, if he cannot have any such meeting himself, to discuss that further.

Mr Hammond 

Angela Knight is the chairman of the Office of Tax Simplification, and we will of course seek its advice in this matter. I am grateful to my right hon. Friend.

Yvette Cooper (Normanton, Pontefract and Castleford) (Lab) 

May I just confirm the slightly astonishing thing that the Chancellor said a few moments ago—that the first person to raise the Tory manifesto with him was the BBC’s Laura Kuenssberg? Is it actually the case that nobody in No. 10 and nobody in No. 11 checked the Conservative manifesto before he wrote the Budget?

Mr Hammond 

I did say that, but let me be clear: I think that Laura Kuenssberg was the first person after I spoke to raise the issue outside. The Government have always been clear, as I said on Wednesday evening and on Thursday, many times, and the Prime Minister said on Thursday evening, that we have always regarded the legislated tax locks as being the commitment we were working to. Our whole approach in the Treasury—all the work we do—is based around the tax locks that are in place. I accept, however, that there is a gap between the specific tax locks that were legislated and the wording that was used in the manifesto. We have today accepted that the more expansive interpretation should be the one that prevails, and that is why I have made the statement that I have.

Neil Carmichael (Stroud) (Con) 

I certainly welcome this statement because it underlines very strongly the case for fairness and also salutes the important work that self-employed people do. Does the Chancellor of the Exchequer agree that if we enter a period of turbulence for whatever reason, it is fundamentally necessary to have a strong fiscal basis, and that is what he is achieving through acting in this way?

Mr Hammond 

As I said in the Budget speech and previously in the autumn statement, we are seeking to do three things: to keep Britain on track for balancing the budget as early as possible in the next Parliament through fiscal discipline; to invest in Britain’s future to raise our productivity and ensure a decent standard of living for everybody across this country, on which we made further steps in this Budget by investing in skills; and to ensure that we have enough fiscal headroom in our fiscal position to allow for any events that arise over the coming years. We need the ability to manoeuvre as we go through what will be a period of unusual uncertainty in the planning of our economy.

Wes Streeting (Ilford North) (Lab) 

More than 10,000 people in Ilford North will welcome the Chancellor’s damascene conversion to the novel idea that parties might keep the promises in their manifesto. What does it say about the competence of this Government, on a day when they reveal that there are no costings for a hard Brexit, that this year, on his watch, we will have two Budgets, two policies on national insurance in a week, and a £2 billion black hole in his Budget? Whatever happened to the long-term economic plan?

Mr Hammond 

I have set out our long-term plan. The hon. Gentleman knows the fiscal figures, because they were published last week. As I have said, I do not resile at all from the commitment that I have made that we will, overall, be broadly fiscally neutral. I will introduce additional measures—[Interruption.] Well, it would not be appropriate for me to do so today, but I will bring forward additional measures in the autumn Budget to address the cost of the changes that I have announced today. By the way, if I could just give him a piece of advice, before he goes in too hard on keeping manifesto promises, he might just want to check his own party’s record in government on that particular score.

Steve Double (St Austell and Newquay) (Con) 

On behalf of the 9,000 self-employed people in St Austell and Newquay, may I thank the Chancellor for his statement today and for being willing to listen to the sensible voices of Conservative Members and the business community in making this change? Will he confirm that there is absolutely nothing wrong in someone legitimately choosing to be self-employed and in charge of their own work destiny, and that this party will always be on the side of the entrepreneurs, who are the heart of our economy?

Mr Hammond 

Yes. I can say to the self-employed of St Austell and, indeed, more widely across the UK that this Government will always support enterprise and those who start and grow businesses. As I said in the Budget speech, we believe that people should have choices about the way they work. There are very many good reasons for choosing self-employment, and there are many good reasons for choosing to incorporate. It is incumbent on us to make sure that unfair tax benefits are not one of the things that drive people to make such decisions.

Sammy Wilson (East Antrim) (DUP) 

The 130,000 self-employed people in Northern Ireland, who make up a seventh of the workforce, will welcome this change of heart by the Government. Does the Chancellor recognise, however, that the imposition of quarterly tax returns, which has been delayed for one year, and the closing of the flat-rate VAT system will also have an impact on self-employed people? Instead of targeting those who are genuinely self-employed and who have contributed to today’s low unemployment figures, should he not concentrate his efforts on the large corporations, such as the BBC, that abuse the tax system and have self-employment contracts to avoid paying tax?

Mr Hammond 

As the hon. Gentleman will know, this Government have introduced a raft of measures over the years to target the avoidance of tax by large corporations, and we have raised a very substantial amount of additional tax—well over £100 billion—through those measures. The VAT flat rate scheme, which he mentioned, was introduced to assist the smallest businesses, but it had been turned into a systematic route for abuse, and I am afraid that we had to deal with it to make sure that the tax base was not eroded. However, we will always seek to support the genuinely self-employed hard-working people who are the backbone of this country’s economy.

Michelle Donelan (Chippenham) (Con) 

On behalf of all the hard-working self-employed people in Wiltshire, I thank the Chancellor for his announcement today and welcome it. The introduction of a new state pension marks a significant increase in retirement provision for the self-employed, but without any auto-enrolment scheme, they still do not have parity on pensions. Will the Chancellor please remember that and look at it?

Mr Hammond 

Yes. As we have now cast more widely our review of the differences in how employees and the self-employed are treated, it is right that we should look at that particular aspect as well, and we will do so.

John Woodcock (Barrow and Furness) (Lab/Co-op) 

Can we just be clear: is the Chancellor saying that he was not aware that he was breaking his own manifesto promise until the BBC pointed it out, or that he was aware of it but was just hoping no one noticed?

Mr Hammond 

Neither. We understand the commitment that we made to have been discharged by the passage through the House of the National Insurance Contributions (Rate Ceilings) Act 2015, which set out very clearly the scope that the then Chancellor decided to apply to the national insurance contributions lock. That is how the Treasury has worked since 2015, with the locks and ring-fences that were put in place. They are part of the everyday workings of the Treasury, and that was what we worked to in this case. However, I have accepted today that there is a broader interpretation—based on the manifesto itself, not the legislation that implemented it—and that is why I have come to the House and made this statement.

Bob Blackman (Harrow East) (Con) 

I congratulate my right hon. Friend on listening to the self-employed and to representations from Conservative Members in particular. Will he confirm that the announcements he has made today about the abolition of class 2 national insurance contributions and their transfer to class 4 contributions mean, in effect, that every single self-employed person in this country will experience a tax cut over the next two years?

Mr Hammond 

Yes. It will not be over the next two years, but in one go, with a tax cut of about £130 a year in April 2018. That is because class 2 is a regressive tax—it is a flat-rate reduction for everybody who is self-employed, regardless of the level of their income.

Ms Tasmina Ahmed-Sheikh (Ochil and South Perthshire) (SNP) 

This is of course a welcome U-turn, but if it is right to rethink this decision, is it not also right to look at the decisions that were overlooked last week? The Chancellor spoke in his statement about unfairness in treatment. May I remind him of the thousands of WASPI— Women Against State Pension Inequality—women who protested outside the Chamber last week, and ask him when his Government will redeem in full their contractual obligations to them?

Mr Hammond 

We have already addressed the concerns of women affected by the change in pension age. Of course I am aware of the residual concerns being expressed by that group of people, and we hear those concerns, but we have addressed the principal issue.

Mr Peter Bone (Wellingborough) (Con) 

I very much welcome the Chancellor’s statement. In Wellingborough, we had a parliamentary meeting on Saturday morning, when the view on the general principle in the manifesto was mentioned. Will he look to the future, however? He may be able to narrow the difference between the employed and the self-employed by reducing the contribution that the employed make, so will he do that from the Brexit dividend?

Mr Hammond 

My hon. Friend never misses an opportunity to bring us back to his agenda. I have had suggestions from various parties that the gap between the contributions of the employed and the self-employed could be narrowed by the device of lowering the contributions of the employed. However, 85% of the working population are employed, and any reduction in the contribution of the employed would be a huge fiscal cost and would—in our world—have to be paid for, although the right hon. Member for Hayes and Harlington may have a different view.

Christian Matheson (City of Chester) (Lab) 

The clear impression given by today’s announcement is of a reactive Government who are not in control of their own agenda. Following on from the question of my hon. Friend the Member for Barrow and Furness (John Woodcock), may I specifically ask the Chancellor whether he knew that his policy contradicted the 2015 Conservative manifesto? If he is such a good listening Chancellor, why did he not listen to representations before he made his statement and not go ahead with his announcement last week?

Mr Hammond 

Because those representations were not made before the statement. In fact, as the hon. Gentleman will remember, there was quite a lot of speculation in the media in the week before the Budget about a possible increase in class 4 national insurance contributions, but I did not see any reference to the manifesto in any of those media discussions. We believe that the National Insurance Contributions (Rate Ceilings) Act put into law the lock that we put in place, and I did not hear anybody suggest anything to the contrary during the press speculation in the week before the Budget.

Amanda Solloway (Derby North) (Con) 

I want to add my congratulations to the Chancellor on his announcement. Self-employment is key to our economy and to the people of Derby. We have many great examples of successful and thriving businesses, thanks to the ongoing polices of this Government. Will my right hon. Friend assure me, however, that he will look at all the ways in which he can encourage the continued growth of those essential businesses?

Mr Hammond 

Yes. It is precisely growing small businesses that we must seek to encourage. The subset of the self-employed who employ people—it is actually quite a small subset—are very much to be encouraged, because that is a way of promoting growth and creating job opportunities in our communities.

Owen Smith (Pontypridd) (Lab) 

May I commend the Chancellor for the bravery of his statement? I ask him to pass on our sincere thanks to Laura Kuenssberg for pointing out to him that it was a duff decision and to the Prime Minister for forcing him to reverse it before breakfast.

Mr Hammond 

I have explained to the House what happened and what the view is inside Government about the tax locks that we put in place. The hon. Gentleman is entitled to his opinion and he has expressed it.

Nigel Mills (Amber Valley) (Con) 

I thank the Chancellor for his change of mind today. I urge him to carry on with some parts of the proposal, namely considering how we can ensure that the very highest earners, who tend to be self-employed, pay the right amount of tax, including partners in limited liability partnerships, who have the advantages of limited liability and of not paying national insurance.

Mr Hammond 

My hon. Friend is right. It is a relatively small group, but about 90,000 self-employed people, many of them on very high earnings, benefit enormously from the way the system operates, particularly those who use limited liability partnerships. That is an essential part of the review of this issue in the round that we have to do.

Andy Slaughter (Hammersmith) (Lab) 

Unlike some of my hon. Friends, I can readily understand why the Chancellor resisted reading the Tory manifesto until Laura Kuenssberg drew his attention to it last week, but I cannot understand his position now. Is it, “I was absolutely right to raise national insurance contributions for the self-employed, and that’s why I’m not going to do it”?

Mr Hammond 

I think I have made my position quite clear. I have distinguished between the two issues. On the substance of the issue, it is absolutely right to address the discrepancy, which is no longer justified by the difference in access to benefits. However, it is also right that we accept the wider interpretation of the manifesto commitment that my hon. Friends have expressed to me. That is why we have said that we will continue to review the issue in the round and will come back to Parliament with our decisions arising from the review, but we will not increase national insurance contributions in this Parliament.

Robert Jenrick (Newark) (Con) 

My constituents, almost a quarter of whom are self-employed, will welcome the decision today, but they also find it extraordinary when they read in the papers that the chief executive of their local hospital trust is paid £400,000 a year through a personal service company—a practice, incidentally, that got completely out of control under the last Labour Government. Will my right hon. Friend the Chancellor continue to tackle those issues, particularly in the public sector?

Mr Hammond 

I empathise enormously with the self-employed of my hon. Friend’s constituency. He will know that I once lived among them. I sympathise with the point he has raised about public sector employees using personal service companies, but he will know that we have legislated so that, from next April, public sector engagers of people who use personal service companies will be responsible for deducting the tax and national insurance contributions that those people would be paying if they were employed directly as employees.

Chris Evans (Islwyn) (Lab/Co-op) 

Will the Chancellor give small businesspeople an assurance that the three years he talks about is not simply a stay of execution and that we will not see another Tory tax hike in three years’ time?

Mr Hammond 

I have made it clear that there will be no increase in national insurance contributions during the remainder of this Parliament. As I have said, I am not setting out today the Conservative manifesto for the next general election. I am making a commitment for this Parliament, and I hope the House will be satisfied with that.

Robert Courts (Witney) (Con) 

I declare an interest as someone who was self-employed until a few months ago. [Hon. Members: “Hear, hear.”] Thank you. As a member of the Federation of Small Businesses and the chairman of the all-party parliamentary group for small and micro businesses, I welcome today’s announcement from the Chancellor and thank him for it, as will the nearly one fifth of my constituents in Witney and west Oxfordshire who are self-employed. Will the Chancellor give a little more detail on the scope of the review he will undertake over the summer?

Mr Hammond 

Yes. First we will respond to Matthew Taylor’s report, which looks more widely at employment rights in a rapidly changing economy. We will look at parental benefits, which are the principal area where there is still a discrepancy in what is available for the self-employed and the employed. There are other relatively minor areas, but we will look at all of them and seek to, as it were, audit the differences in treatment between the employed and self-employed. The House and people outside will then be able to see in the round the difference in access to benefits and entitlements and the difference in contributions, and form a judgment about how we should move forward.

Mr David Hanson (Delyn) (Lab) 

Just so that I do not have to wait 30 years to read the minutes of the Cabinet meeting, will the Chancellor confirm that the decision last week was the unanimous decision of the Cabinet? As he is seeking savings to fill the £2 billion hole, will he start with the £320 million towards free schools that he announced last week?

Mr Hammond 

I am sorry to disappoint the right hon. Gentleman, but he will have to wait 30 years. I am not about to tell him what happened in the Cabinet, but he will know that all decisions are the unanimous decisions of the Cabinet.

Richard Drax (South Dorset) (Con) 

I congratulate my right hon. Friend on his wise and dignified statement today, and thank him for it. Conservative Members understand that we have to live within our means. Is it not time to look at the overseas aid budget and the figure of 0.7% of GDP? I suggest that if we need some money, that is an area we should look at.

Mr Hammond 

There again, we have a manifesto commitment to spend 0.7% of GDP on overseas aid. That commitment has been legislated for and is therefore locked, unless this House were to decide otherwise.

Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP) 

This is another right boorach. The last Chancellor who had to make a U-turn lasted only a few weeks thereafter, so before this Chancellor leaves office, will he confirm that, since he said that this decision was only made at 8 o’clock in the morning, that means it has not been taken to the full Cabinet?

Mr Speaker 

I am very grateful to the hon. Gentleman; I shall add the word “boorach” to my vocabulary.

Mr Hammond 

Yes, the decision was made by myself and the Prime Minister this morning.

Michael Fabricant (Lichfield) (Con) 

I thank my right hon. Friend for reacting so quickly to the representations made to him by colleagues and, indeed, by Laura Kuenssberg. But I ask him in all seriousness to listen on occasion to the Labour party, because there are lessons to be learned. Labour would have leaked this statement out at a weekend, not immediately prior to Prime Minister’s questions. It would not have come to the House and made an oral statement; there would have been a written statement. I say to my right hon. Friend that he is really far too open.

Mr Hammond 

As you would expect, Mr Speaker, we try, if it is at all possible, to ensure that the House is always informed first of these matters. After my right hon. Friend the Prime Minister and I met this morning, I wrote to the Chairman of the Treasury Committee and placed a copy of that letter in the Library of the House, and I have made this statement at the earliest opportunity available to me.

Danny Kinahan (South Antrim) (UUP) 

We have already heard that Northern Ireland has some 134,000 self-employed people. We also know that it is critical that we increase the private sector in Northern Ireland. At the same time, we have 50% fewer new businesses. Will the Chancellor ensure that the future consultation on this matter considers all the aspects of its effects on the Northern Ireland economy?

Mr Hammond 

Yes; as the hon. Gentleman alluded to, there are specific issues in Northern Ireland, where the public sector still occupies a dominant role in the economy. Of course, we all share the objective of increasing the share of the private sector in the Northern Ireland economy. Small businesses can play an important role in that. The lessons of this review will be generally applicable across the United Kingdom, but they will certainly play an important role in Northern Ireland.

Ben Howlett (Bath) (Con) 

Although it might not be palatable to Opposition Members, as somebody who was self-employed for many years before entering this place, I think the Chancellor was absolutely right last week to make his announcement and rebalance the tax base, as more self-employed people enter the jobs market. He was also right to listen to the comments of Government Members. I appreciate that my right hon. Friend does not want to make comments about the next manifesto, but does he agree that we should look at proposals to effectively scrap this very outdated tax and merge it into a single tax, which would be an awful lot more progressive?

Mr Hammond 

As my hon. Friend will probably know, ideas about merging the tax and national insurance systems have been around for longer than I have. Although it is a superficially attractive proposition, it is fraught with practical difficulties. The Office of Tax Simplification looked at it recently, and I am sure my hon. Friend will have read its report. I say to the House that all matters relating to tax are kept continually under review at every fiscal event.

Mike Gapes (Ilford South) (Lab/Co-op) 

Last week, the Chancellor made what at the time was a very funny joke about a Chancellor of the Exchequer sacked just a few weeks after a Budget. Does he, in retrospect, agree with Lord Lamont that this was a rookie mistake?

Mr Hammond 

I set out the basis on which we made the difficult decision to proceed with changes to class 4 national insurance, packaged with the abolition of class 2 national insurance, to try to make the system a little bit fairer. We listened to our hon. Friends and decided to withdraw the proposals, conduct a wide-ranging review and set out to Parliament later in the year how we intend to proceed.

Dr Andrew Murrison (South West Wiltshire) (Con) 

I congratulate my right hon. Friend on his statement, and warmly thank him for listening to colleagues and their constituents. Notwithstanding his comments to my hon. Friend the Member for Bath (Ben Howlett), may I invite him to look afresh at the possibility of hypothecating national insurance contributions, so that contributors to NICs, employers and the public can see a clearer link between their contributions and the services they receive?

Mr Hammond 

There is a soft hypothecation around national insurance contributions: 20% of the fund goes to the national health service. They fund the state pension to which self-employed people now have full access for the first time—an extraordinary enhancement in the entitlement. I am told that, for a 45-year-old man, the enhanced pension in retirement, £1,800 or more a year, would cost about £50,000 as a capital sum to purchase an annuity in the marketplace. That is an extraordinary expansion of the entitlement offered to the self-employed.

Paula Sherriff (Dewsbury) (Lab) 

Well, well. They do say a week is a long time in politics and I am sure the Chancellor would agree with me on this occasion. Now, £2 billion would account for over 10,000 police officers, 10,000 teachers, 12,000 nurses and 5,000 doctors. Will the Chancellor guarantee that none of those posts will be cut as a result of his Government’s gross incompetence?

Mr Hammond 

The hon. Lady might also have remarked that £2 billion was the amount we put into social care funding in the Budget last week, alongside additional capital for the NHS, investment in schools and investment in skills. [Interruption.] Not enough, she says. I understand why she says that, because the shadow Chancellor tells her, “You can borrow for everything you want to do. Don’t worry, the kids will pick up the tab.”

John McDonnell 

Read your own manifesto.

Mr Hammond 

I am listening carefully to the right hon. Gentleman, but I am not hearing anything worth listening to.

David Morris (Morecambe and Lunesdale) (Con) 

I was self-employed for 27 years before I came into this House, and I have campaigned long and hard for the abolition of class 2. My hon. Friend the Member for Harrow East (Bob Blackman) said that this is a tax cut, which it is. Will the Chancellor allude to what the self-employed will be getting? As a self-employment ambassador to the former Prime Minister, I know the self-employment sector is very keen to find out exactly what it will get for this extra annuity.

Mr Hammond 

The self-employed benefit from increased personal allowances, taking 3 million people out of tax altogether and a tax cut for 29 million people. From April this year, the self-employed, like the employed, will have access to tax-free childcare and the additional childcare offer for three and four-year-olds. That is a new extension of the entitlement to the self-employed. As I mentioned, the extension last year of the state pension to the self-employed on the same basis as employees really was a dramatic step-change in the way the system operates. It is worth noting that with all these enhanced entitlements there has been no change at all to the contribution asked of self-employed people.

Margaret Ferrier (Rutherglen and Hamilton West) (SNP) 

The Evening Standard delivered a damning verdict on its front page today, “Hammond U-turn on Budget Fiasco: Chancellor’s job on line as he climbs down over tax rise for entrepreneurs.” It is looking like the last spring Budget may also be the Chancellor’s last Budget. In fact, we have heard he has just endorsed Laura Kuenssberg from the BBC. How does he intend to build trust in his competence following this utterly shambolic episode?

Mr Hammond 

I explained how we approached this issue. We have a bigger job to do here. The country is embarking on a great venture that will shape the future of this country for many years to come. National insurance class 4 contributions are important, but I suggest they are not the only challenge facing the country today. It is important that we focus on the other issues that are vital to get right.

Andrew Bingham (High Peak) (Con) 

I applaud my right hon. Friend on three counts: his ability to understand, listen and act. He understands that the changes can be seen as a break with a manifesto commitment, he listened to colleagues on the Conservative Benches, and he acted swiftly and with certainty to give self-employed people the clarity that people in business want. In the review, will he ensure that we never lose sight of the fact that the self-employed are the risk takers and the entrepreneurs who power our economy, at great risk and uncertainty to themselves?

Mr Hammond 

As I have said many times today and am very happy to say again, we will always support those who are taking risks to grow and found new businesses. Our job—I take this very seriously and my right hon. Friend the Prime Minister takes it very seriously—is to do what is right for the country. When it becomes apparent that we have to do something because it is the right thing for the country—that is what has become apparent to us over the past couple of days—we will do it, however difficult it is. That is what I have done today.

Geraint Davies (Swansea West) (Lab/Co-op) 

I realise that the Budget has now become a consultation exercise. Will the Chancellor confirm that at the time he and his colleagues put together the manifesto commitment not to put up national insurance, VAT or income tax, there had been no economic impact assessment of Brexit; and that the economic cost of Brexit, from hard Brexit and tariffs, will fall wholly on public services and the poor?

Mr Hammond 

It is certainly the case that at the time of the last general election the referendum had not taken place. Indeed, if a Conservative Government had not been elected a referendum would not have taken place. The hon. Gentleman knows and understands that very well. I have explained today how we approached the manifesto commitments, how we delivered them into law and how we have reviewed the way they are seen in the light of representations from colleagues.

Huw Merriman (Bexhill and Battle) (Con) 

There has been much talk about the manifesto. This is the manifesto that promised to protect the elderly. In delivering an extra £2 billion for social care, does the Chancellor agree that those of us on the Government Benches need to support him when he makes difficult decisions to raise the cash? The alternative is putting future generations into horrendous debt.

Mr Hammond 

My hon. Friend is exactly right. As I have already said several times today, we will not adopt the convenient ruse the right hon. Member for Hayes and Harlington has of pretending that we can borrow for everything without any cost. If something needs doing, such as funding our social care system, we have to be prepared to pay for it. Simply pretending that we can borrow for it and pass the debts to our children is not a credible fiscal position.

Alan Brown (Kilmarnock and Loudoun) (SNP) 

This farce has come about partly because of the lack of transparency in the estimates and Budget process. The Government should look at it again. Given that the Chancellor admits his spring Budget is no longer fiscally neutral, I have a few suggestions for what he can look at again: the higher rate threshold, nearly £3 billion; lifetime ISA up to £20,000, £3 billion; corporation tax giveaway, £23.5 billion; and inheritance tax giveaway, nearly £3 billion. That is £32 billion worth of giveaways over the next few years in this Budget. Why does he not look at those measures again when he talks about balancing the books?

Mr Hammond 

We know that the Scottish National party believes in higher taxes, because everyone earning more than £45,000 will be paying £314 a year more tax in Scotland next year than in England.

Charlie Elphicke (Dover) (Con) 

I commend the Chancellor for his statement and urge him to take firm action on fake self-employment, which is tax dodging by big businesses that are shirking their responsibilities and should know better. Will he also consider the case for a wide-ranging reform for a new deal for the self-employed, not just on the tax side of the ledger, but in respect of workplace support, so that we could have fairness and a level playing field between different types of worker?

Mr Hammond 

That is the purpose of the report that Matthew Taylor is writing to look at the differences in treatment as the economy changes shape. My hon. Friend is absolutely right that there are examples of employers egregiously forcing employees into bogus self-employment, but there are also much more complex cases—for example, where new digital platforms are allowing people to work in different ways. Are they employees; are they self-employed; are they something else in between? We need to ask those questions because, as the economy changes shape, this will become an increasingly important issue for us to address.

Mark Durkan (Foyle) (SDLP) 

The Chancellor now accepts that the shape, pace and burden of the change that he announced were going to be problematic, and he makes the case for longer-managed and balanced change. He has told us that he needs to consider the issues in the round, looking at contributions and entitlements. Why cannot that same benchmark extend to the WASPI women, who find themselves victimised by the pace and shape of change? He describes their outstanding grievances merely as residual concerns. If Laura Kuenssberg does a report that points out that the WASPI women’s grievances are much more than residual concerns, will he reconsider?

Mr Hammond 

As I have said, we have considered the issue of women affected by the pension age changes and we have provided some transitional funding. I am aware that there are people who believe that that is not sufficient and who would like more. I understand that, but the role of Government is always to balance the claims of individuals against the interests of the taxpayer, who has to fund these things in the end, and we think we have got that balance right.

Mr Philip Hollobone (Kettering) (Con) 

Away from the Chamber of the House of Commons, out there in the real world, there is an army of self-employed people who are working their socks off from dawn to dusk and often longer. They often take great personal risks. They are the heroes and heroines of wealth creation. Without their efforts, we simply would not be able to afford the public services that we all enjoy. On behalf of the self-employed people of Kettering, I commend my right hon. Friend’s statement and thank him for thinking again.

Mr Hammond 

I am grateful to my hon. Friend, and I extend my sincere good wishes to all the people of Kettering—self-employed or otherwise—and everywhere else.

Tracy Brabin (Batley and Spen) (Lab) 

Although the freelance cultural industries and the self-employed of Batley and Spen are very grateful for this U-turn, it is the slashing of the dividend drawdown from £5,000 to £2,000 that makes a massive difference. Some people are living on this when they cannot get work for month after month. Will the Chancellor do a U-turn on that as well?