Why the economists aren’t for turning on NICs

Leading analysts regret the failure of Philip Hammond's 'small but sensible' change

Politicians from the right and left may have found common cause in opposing Philip Hammond’s national insurance hike, but Britain’s leading economists are not happy about yesterday’s u-turn.

Paul Johnson, head of the Institute for Fiscal Studies, says that the reversal undermines attempts to make the tax system simpler and fairer. In a letter to The Times, he writes:

“Politicians tell us every day how much they want a simpler and fairer tax system. Yet if there is anything that creates complexity and unfairness in a tax system, it is treating similar activities differently. Taxing employees, the self-employed and small companies very differently leads to exactly this sort of complexity and unfairness. But when push comes to shove, it seems we are not actually willing to do anything about it.”

Last week, the IFS described the increase in self-employed NICs as ‘a modest but welcome change’, and Johnson suggested that the problem was with the Tories 2015 promise, not with the policy that broke it.

Today’s letter continues:

“We should learn some lessons. First, it is a mistake to commit in a manifesto to not raising the three most important taxes — that ties the chancellor’s hands to an absurd degree. Second, some long-term planning and strategy would not go amiss. The self-employed have been handed two big bonuses in recent years: access to a much enhanced state pension and the abolition of class 2 national insurance contributions. Announcing an increase in the class 4 rate at the same time, rather than as an apparent afterthought, might have made more sense. And finally, we need a more sensible debate about tax and spend. If we really can’t raise taxes, then even more (and even deeper) public spending cuts are the only alternative.”

The final point should give the Labour leadership pause for thought, since a continuation of the anti-tax agenda will also tie the hands of future Labour governments attempting to introduce moderate tax reforms.

Torsten Bell, director of the Resolution Foundation, also voiced disappointment that Hammond couldn’t push through a ‘small and sensible’ change.

The Resolution Foundation had welcomed last week’s change as a progressive shift, primarily hitting the richer half of earners.  Bell said the situation was ‘pretty simple’ and that the change was’a breach of the manifesto commitment’ but ‘the right thing to do’.

See also: Poor families’ incomes are about to get slammed – but it’s nothing to do with NICs

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