Britain scraps tax plan, leaving budget hole and credibility to fix

Bloomberg

UK Chancellor of the Exchequer Philip Hammond scrapped a plan to increase tax on the self-employed, after a storm of criticism from legislators in his own ruling Conservative Party.
Hammond was accused of breaking a manifesto pledge not to hike national insurance contributions, made by the Tories before they won the 2015 election, when he announced the proposal in the Budget on March 8. Conservatives said the move was a tax on entrepreneurs, as well as a breach of voters’ trust.
With enough lawmakers voicing displeasure to threaten Prime Minister Theresa May’s slender majority of 17, the government backed down exactly a week after the measure was first unveiled. “It is very important both to me and to the prime minister that we are compliant not just with the letter, but also the spirit, of the commitments that were made,” Hammond said in a letter to Conservative members of Parliament on Wednesday.

U-TURN
While the U-turn will pacify backbench Tory lawmakers, it leaves Hammond with dented credibility and a hole in his accounts that he must now fill. The increase in the Class 4 NIC rate to 11 percent from 9 percent by 2019 was forecast to raise about 2.1 billion pounds ($2.56 billion) over four years. The first 1 percentage point increase was due to take effect next year. While this could undermine Hammond’s authority, by doing it quickly it shows he’s acknowledged the misjudgment and acted on it,” said Tim Bale, professor of politics at Queen Mary University of London.”They could have let it drag out a bit and climb down in the summer, but it was better to get it over with quickly.”
Hammond insists that the cost of the changes will be funded by others measures to be announced in the Autumn budget. Even so, he said the government believes “that the current differences in benefit entitlement no longer justify the scale of difference in the level of total NICs paid in respect of employees and the self-employee.”