In his Budget speech, Hammond said the changes were needed to make the tax system fairer, and the move was supported by various think-tanks including the Resolution Foundation.
However, last week’s announcement sparked fierce criticism from Tory backbenchers as it appeared to contravene a specific pledge in the 2015 Conservative manifesto that the party would not seek to raise NICS, income tax or VAT.
In a letter to MPs today, Hammond confirmed that there would be no rises in NICS for self-employed people in the current Parliament. However, he said the government remained convinced it was still the right thing to do.
The government’s earlier plan to abolish class 2 NICs from April 2018 will still go ahead, the chancellor confirmed.
The measures, had they been retained, would have seen the main rate of Class 4 NICS for the self-employed increased from 9% to 10%. This rate would see a further increase of 1% to 11% from April 2019.
In his letter, Hammond said: “The measures I announced in the Budget sought to reflect more fairly the differences in entitlement in the contributions made by the self-employed and address the challenge of sustainability of the tax base.”
However, he added: “It is very important both to me and the prime minister that we are compliant not just with the letter, but also the spirit of the commitments that were made.
“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 on the budget.”
Hammond will now have to consider how to account for the £145m per year these changes were expected to bring to the public purse each year by 2021. In the letter, Hammond said the cost of these changes “would be funded by measures to be announced in the autumn Budget”.