A planned tax cut for millions of self-employed workers has been scrapped by Chancellor Philip Hammond.
The Treasury revealed on Thursday it will no longer abolish Class 2 National Insurance contributions (NICs).
Mr Hammond’s predecessor George Osborne had announced the move in 2015, with the Treasury estimating at the time that 3.4 million people would benefit from an annual tax cut of £134 on average.
Class 2 NICs are payable by those who earn profits of £6,205 or more per year. At the current rate of £2.95 per week, they now cost about £150 per year.
The Treasury previously estimated the tax cut would cost the exchequer around £360m per year, meaning Mr Hammond now has hundreds of millions of pounds extra in the national coffers.
It comes at a time when he is considering how to fund a government pledge to set aside an extra £20bn a year for the NHS by 2023.
The abolishment of Class 2 NICs was due to occur in April this year, but was delayed for 12 months by Mr Hammond in November last year.
The Treasury explained the year-long delay by saying the government wanted to “ensure that there are no unintended consequences for the lowest paid”.
Treasury minister Robert Jenrick has now announced the complete scrapping of the tax cut, highlighting concerns about self-employed workers’ pensions.
“A significant number of self-employed individuals on the lowest profits would have seen the voluntary payment they make to maintain access to the state pension rise substantially,” Mr Jenrick wrote in a statement to MPs.
“Having listened to those likely to be affected by this change we have concluded that it would not be right to proceed during this parliament, given the negative impacts it could have on some of the lowest earning in our society.
“Furthermore, it has become clear that, to the extent that the government could address these concerns, the options identified introduce greater complexity to the tax system, undermining the original objective of the policy.
“The government remains committed to simplifying the tax system for the self-employed, and will keep this issue under review in the context of the wider tax system and the sustainability of the public finances.”
Labour’s shadow chancellor John McDonnell accused the government of “yet another betrayal of the self-employed”.
“These people are the engine of the economy and have been let down again, while giant corporations have seen their tax bills slashed,” he said.
“Few will ever trust Philip Hammond or the Tories again.”
Business groups also reacted with anger to the announcement.
Mike Cherry, national chairman of the Federation of Small Businesses, said: “The self-employed community has been let down today, missing out on a promise to reduce their tax burden.”
Mr Hammond was forced into a U-turn within days of his first budget as chancellor in March 2017, which saw him accused of an attack on “white van man”.
He reversed a proposed increase to Class 4 NICs after the government was charged with breaking a 2015 manifesto pledge not to put up national insurance, income tax or VAT.
The Conservatives scrapped this so-called “tax lock” in their manifesto for last year’s snap general election.