The controversial Budget proposal contravenes the 2015 Conservative manifesto commitment not to raise VAT, National Insurance Contributions (NICs) or income tax.
Although Prime Minister Theresa May continues to back Chancellor Philip Hammond’s reforms, which are intended to align national insurance contributions of the self-employed more closely to those of employees, the move is a bid to soften the impact of the changes and lessen the blow.
Government officials said there was “no rush” to bring forward legislation to implement the increase in the Class 4 NIC rate and May said a bill would not be published until the autumn with the tax change scheduled for April 2018.
May hinted that the tax changes would be accompanied by a better deal for the self-employed including new parental rights, but she refused to apologise for breaking the manifesto pledge.
May told a Brussels press conference during an EU summit on Thursday evening: “The shift to self-employment is eroding the tax base and making it harder to pay for the services that ordinary families depend on.”
The staged rise of NICs from 9p to 11p is expected to raise about £500m a year.
Both the Institute for Fiscal Studies and the left-leaning Resolution Foundation have supported the move, which brought a torrent of media criticism from Conservative newspapers and some Tory MPs.
Guto Bebb, Wales minister, said the party should apologise for breaking the promise and told BBC Radio Cymru: “I will apologise to every voter in Wales that read the Conservative manifesto in the 2015 election.”
Privately many other MPs have said they think a climb down is inevitable.
Dominic Raab, a former minister, said: “I struggle with the changes to national insurance for the self-employed. I am in the business of cutting taxes, not raising them, particularly for the entrepreneurial classes.”
John McDonnell, Labour’s shadow chancellor, urged Tory MPs to join Labour in opposing the NIC increases. With a working Commons majority of just 17 the government could be defeated on the measure, which must be enacted in a separate piece of legislation.
During the Budget speech on 8 March, Hammond also made it quite clear he views investors setting up limited companies for tax reasons dimly, so the industry has to wonder how long that might be allowed to continue.