Chancellor Philip Hammond announced today that self-employed people would not have to pay the increased national insurance contributions (NICs) he revealed in his spring budget a week ago.
The original plans would have increased NICs paid by the self-employed on profits between £8,060 and £43,000 from 9% to 11% in 2019, bringing them closer to the 12% paid by employees.
He had described the current system as "not fair to the 85% of workers who are employees" due to the additional benefits that the self-employed receive as a result of the new state pension announced last year.
However, today he said: "There has been much comment on the question of commitments made in our 2015 manifesto, and it is very important both to me and to the Prime Minister that we are compliant with the spirit of the commitments that were made.
"In light of what has emerged as a clear view among colleagues and a significant section of the public, I have decided not to proceed with NIC measures set out in the budget."
This U-turn has since been criticised for failing to address the differing rates that employees and the self-employed pay, which the chancellor said was costing the UK economy billions of pounds last week.
Resolution Foundation director, Torsten Bell, said: "Whatever the rights and wrongs of manifesto commitments, today's U-turn on national insurance means the government has missed an opportunity to correct a big structural flaw in our tax system.
"This matters both for fairness and for the public finances. The U-turn means the cost of lower national insurance for the self-employed will now grow from £5.1bn this year to an estimated £6.2bn in 2019-20.
"It is deeply regrettable that a U-turn on a small and sensible piece of tax reform that affects higher income households coincides with the decision to press ahead with benefit cuts that leave low and middle income households facing a far greater hit in the coming weeks."
The chancellor said that the cost of today's changes would be funded by measures to be announced in the autumn budget later this year.
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