Was National Insurance increase driven by desire to cash in on gig economy rather than to restore fairness?

The increase in the rate of national insurance for the self-employed, announced in today’s budget, is an attempt by the Treasury to extract greater receipts from the so-called ‘gig economy’, according to accountants PKF Littlejohn.

The Chancellor raised main rate of Class 4 National Insurance Contributions (NICs) to 10% from April 2018 and 11% from April 2019 in order close the gap in in NICs between those in employment and the self-employed, and to replace the previous Class 2 NICs, which were considered to fall disproportionately on lower earners.
 
Tax specialists from PKF Littlejohn believe that the growing popularity of self employment – driven in part by the rise of companies such as Uber, Deliveroo and Airbnb  - will have been a major factor behind Philip Hammond’s decision.
 
Chris Riley, Head of Tax at PKF Littlejohn, said: “Raising the main rate of Class 4 National Insurance Contributions by two percent isn’t going to have as dramatic an impact as the lengthy build-up in the Chancellor’s speech.  However, as a policy that was announced as being fairer and ‘less regressive’ than the Class 2 NICs it purports to replace, it was perhaps a little overstated.”
 
A self employed person earning £35,000 per annum, for example, will be paying £536 extra each year by 2019 as a result of the measures announced today.  However, the increase tops out at profit levels of £45,000, with a maximum increased charge of £737 per year. 
 
Chris continues:  “It takes only a back of the envelope calculation reveal that the changes will affect those with lower profits more than those with greater income levels.  
 
“However, with self-employment becoming a viable option for an increasing number of individuals thanks to the rise of the gig economy, the Treasury may have decided that now was the right time to start banking higher receipts from this growing army of flexible workers. Seen in this way, this is a calculated move by the Chancellor that gives the Treasury some upside from a trend that shows no signs of waning.”