The UK government has come under fire for scrapping plans to cut tax by over £150 per year for self-employed workers.
Called “yet another betrayal of the self-employed” by shadow chancellor Mr McDonnell, the move has been criticised both by the Labour party and the Federation of Small Businesses (FSB).
The plans to get rid of Class 2 National Insurance contributions, after stalling with delays to April 2019 have now been abandoned, saving the Treasury an annual £360 million.
George Osborne announced the Class 2 NICs cuts in his last Budget in 2016.
However, Phil Hammond expressed concerns that it would increase bills for low-profit self-employed workers, and so delayed the cuts.
These national insurance contributions (NICs) are £2.95 per week and are for self-employed workers who earn more than £6,025 per year. They mean that these workers qualify for maternity allowance and contribution-based employment and support allowance, alongside a basic state pension.
While the abolition of NICs for those above the threshold would save them around £150 per year, Treasury analysis found that 300,000 people below it would have to pay Class 3 NICs, which work out at five times the amount, costing them £761.80 per year.
In a written statement to MPs, Treasury Minister Robert Jenrick said: “Having listened to those likely to be affected by this change we have concluded that it would not be right to proceed during this Parliament, given the negative impacts it could have on some of the lowest earning in our society.”
He added: “The government remains committed to simplifying the tax system for the self-employed and will keep this issue under review in the context of the wider tax system and the sustainability of the public finances.”
But shadow chancellor Mr McDonnell called self-employed workers “the engine of the economy” and said that they have been “let down again, while giant corporations have seen their tax bills slashed.”
FSB Chairman Mike Cherry said the Treasury “should have worked harder” to find ways to protect low-earners.
He doubted the government’s commitment to supporting the self-employed, and especially those who are struggling.
He added: “Class 2 NICs is a regressive levy that indiscriminately hits sole traders and makes life even tougher for those who are hard-up.”
“The self-employed community has been let down today, missing out on a promise to reduce their tax burden.”
There are currently no plans to reshape the tax cut in a different way.
This story takes place in a wider debate surrounding the increasing numbers of people working in the grey area between employed and self-employed in the “gig economy”.
The Office of Tax Simplification, which advises the Government on the UK tax system, published a paper in July saying that “the development of the gig economy and new ways of working through online platforms has profound consequences for the employment landscape. At the OTS, we are concerned with the tax implications and how the experience, especially of individual tax payers, can be simplified.”
Simplification, guidance and even apps have been proposed as ways in which to solve this ever-growing problem.