David Gauke is Chief Secretary to the Treasury and MP for South West Hertfordshire.
Yesterday’s Budget was about laying the building-blocks of a post-Brexit Britain, preparing our great country for the start of a new chapter outside of the EU. The Chancellor provided an upbeat assessment of the future of the British economy, and set out a plan to invest in Britain’s future.
As Conservatives, we all know that a strong economy is built on resilience and that’s why this Government is sticking to its plan of continuing to bring down the deficit so that we get back to living within our means.
This means not shirking the difficult decisions that need to be taken on tax and spending, but it doesn’t mean that we can’t invest in our future generations.
The Budget supports ordinary working families by extending opportunity to all our young people. It delivers further investment in our public services to meet the needs of an ageing population; it invests in technical training and new free schools; and it invests in infrastructure and innovation so that we can build a Global Britain, at the forefront of new technology, with better jobs and better pay.
We can be proud of our achievements: last year, the British economy grew faster than the United States, faster than Japan, faster than France. Amongst the major advanced economies, Britain’s growth in 2016 was second only to Germany. Our employment rate is at record high, with over 2.7 million more people in work than in 2010. The deficit is forecast to be 2.6 per cent of GDP in 2016-17, down by three-quarters since 2010 and set to fall to 0.9 per cent in 2020-21.
As Conservatives, we understand that there is nothing fair or right about racking up debts to pass on to our children and we are determined to bring the budget to balance in an appropriate time frame.
But we also know there are pressures on our public services, primarily the social care system. Yesterday the Chancellor announced an additional £2bn for councils in England to spend on social care over the next three years. We also know that money is not the only solution to the problem. There is a wide variation in the performance of local authorities, with over half of all delayed hospital discharges in just 24 local authorities.
And as Conservatives, we know that we can only fund vital public services if we have a strong economy. Just as a strong economy requires a tax system that is competitive, a strong society requires one which is fair. That means fair between different generations, fair between different sections of society, and fair between individuals, so that people doing similar work, for similar wages, pay broadly the same tax.
That is why have taken action to address the growing gap in taxation between the employed and the self-employed. Of course individuals should be free to choose whether employment, self-employment and working through their own company is the right decision for them and their family. But we are clear that such decisions should not be driven by tax. The lower National Insurance paid by the self-employed is forecast to cost our public finances over £5 billion this year alone. That is not fair to the 85 per cent of workers who are employees.
The variation in NIC rate between the employed and self-employed has previously been justified by preferential access to the state pension and contributory welfare benefits. But with the new state pension – and the Chancellor’s commitment to review parental leave – these differences have been largely eliminated.
An employee earning £32,000 will incur between him and his employer £6,170 of NICs. A self-employed person earning a similar amount will pay just £2,300. In a rapidly changing economy, it doesn’t seem fair that someone doing a similar job should pay such different NICs, when their state benefits are now so similar.
Last year, it was announced that Class 2 NICs for self-employed people will be abolished in 2018. This would have further widened the discrepancy between contributions made by employees and the self-employed. So the changes announced today will see the main rate of Class 4 NICs increase by one per cent to ten per cent, with a further one per cent increase in April 2019. Self-employed people earning less than £15,900 a year will still see a reduction in their NICs bill, and will in addition benefit from the increased income tax personal allowance.
So this is a Budget about fairness. It is a Budget to prepare Britain for a highly-skilled global future. It continues our work to bring Britain back to living within its means, securing out public services for the long-term. It supports our NHS by providing substantial funding to the social care system, so people get the care they deserve as they grow older. It helps young people from ordinary working families gain the high-paid, high-skilled jobs of the future. And it invests in cutting-edge technology and innovation so Britain continues to be at the forefront of the global economy.