FTSE 100: 7547.63 ▲ 29.92 (0.40%)
Chancellor Philip Hammond has dropped plans to increase national insurance contributions (NICs) paid by the self-employed.
The proposals were a key part of last week's Budget. Under the plans self-employed people would have seen their NICs rise from 9% to 10% from April 2018. This was set to rise to 11% in April 2019 as part of moves to narrow the gap in tax paid by employed and self-employed.
The move provoked uproar and accusations that Hammond (pictured) had broken a Conservative party's 2015 manifesto pledge to not raise income tax or national insurance.
In a letter to MPs Hammond said he wanted to make sure the government stuck to the 'spirit' of its manifesto pledge.
'In light of what has emerged as a clear view among colleagues and a significant section of the public, I have decided not to proceed with the class 4 NIC measures set out in the Budget. There will be no increases in NICs rates in this parliament,' he said.
The chancellor's retreat divided financial experts.
Graeme Robb of pension provider Prudential said it was good news for millions of self-employed people who should consider saving into a pension to beat possible tax rises later in the year.
Tom McPhail, head of retirement policy at Hargreaves Lansdown, the wealth manager, was unimpressed. He said the u-turn on what he called a 'modest and redistributive measure' raised questions about the government's ability to drive through unpopular measures.
'If this is how it is going to be until 2020, the government might be better off triggering an early general election in pursuit of a fresh mandate and an increased majority.
'In the meantime, this U-turn will increase pressure in other areas of fiscal policy and may increase the risk of further pension tax tinkering in the Autumn budget,' he added.
George Bull, senior tax partner at auditors RSM, urged Hammond to tackle tax evasion and the shadow economy which he said cost the country £11.4 billion in lost revenue.
'If the chancellor is serious about tax fairness and maximising revenues, then he should resource HMRC to begin a new campaign against tax evasion, starting with an amnesty for tax evaders to encourage them to come forward and pay what’s due,’ he said.