Philip Hammond announced that self-employed people will pay an extra 1% in national insurance contributions (NICs) from April 2018, and a further 1% the following year, in his spring budget today.
Those in self-employment currently pay 9% in NICs on profits between £8,060 and £43,000, while employees pay significantly more, largely because of historic differences in pension and benefit arrangements.
However, the chancellor concluded that the new state pension had 'substantially reduced' the need for different tax rates, with today's changes expected to raise a net £145m each year by 2021-22.
He said: "Employed and self-employed alike use our public services in the same way, but they are not paying for them in the same way.
"The lower national insurance paid by the self-employed is forecast to cost our public finances over £5bn this year alone. That is not fair to the 85% of workers who are employees."
There were no announcements made to encourage private pension saving for the self-employed through an auto-enrolment style initiative, or any backtracking on plans to cut the Money Purchase Annual Allowance from £10,000 to £4,000.
However, pensioners who rely on dividend income will see their tax-free allowance cut from £5,000 to £2,000, while an immediate 25% tax charge on funds transferred to Qualifying Overseas Recognised Pension Schemes from UK registered plans was introduced.
With reports that the government’s strategy for keeping social care from collapse is failing, the chancellor announced that £2bn of grant funding would be put towards the system in England over the next three years.
In addition, he said that health and communities secretaries would announce measures to identify and support authorities that are struggling to ensure more joined up working in the NHS.
Adding: "The long-term challenges of sustainably funding care in older age requires a strategic approach, and the government will set out its thinking on the options for the future financing of social care in a green paper later this year."
In education, funds for 1,000 new PhD and fellowship positions in science, technology, engineering and mathematics subjects were announced, while there was also positive news regarding Office for Budget Responsibility forecasts for the UK economy.
GDP was upgraded from 1.4% to 2% for this year, although inflation is predicted to hit 2.4% in 2017, before falling to 2% in 2019.
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