Tories vow to scrap national insurance for the self-employed ‘risk-takers’

The Conservatives have pledged to get rid of national insurance for four million self-employed workers, leading experts to question how its tax-cutting promises would be funded and who stands to benefit.

The party unveiled the plans as part of its manifesto, launched on Tuesday, ahead of the General Election on July 4.

The Tories say they want to recognise the contribution of “risk-takers and entrepreneurs” to the economy, with the party’s election campaign in full swing as it hopes to win over voters.

The manifesto outlines promises to abolish entirely the mandatory tax, known as Class 4 contributions, by the end of the next Parliament.

That means that within the next five years, self-employed workers making profits of up to £50,270 a year could pay zero national insurance.

Those earning more than £50,270 would still pay a tax rate of 2% on their profits, however.

National insurance (NI) contributions are paid by most workers to qualify for the state pension and certain benefits, such as a maternity allowance and bereavement support payment.

The party said scrapping the tax for the self-employed would not affect their entitlement to a state pension.

“This is a massive simplification of the tax system which means that 93% of all self-employed people – four million of them – will no longer pay self-employed NI,” the document read.

Shaun Moore, a tax and financial planning expert for Quilter, said the pledge is a “mixed bag of implications and devil is very much in the detail”.

“The abolition of Class 4 NI contributions, while beneficial, does not constitute the kind of sweeping reform that could drastically alter the economic environment or address the more pressing challenges like public sector funding,” he said.

“However, for self-employed individuals this new policy would be undeniably positive.”

Nevertheless, Mr Moore pointed out that the total number of self-employed individuals represents “a fraction” of the overall UK workforce.

We will scrap, entirely, the main rate of self-employed National Insurance.

A tax abolished, enterprise encouraged. pic.twitter.com/w9qKMpUMqi

— Rishi Sunak (@RishiSunak) June 11, 2024

Tina McKenzie, policy chair of the Federation of Small Businesses (FSB) said it was a “bold and welcome move to encourage entrepreneurship”, but said the group would like to see a similar tax offer to support directors of small limited companies.

Meanwhile, the pledge raised questions over how the Tories plan to change the current system so that self-employed people still qualify for benefits.

Quilter suggested that the party, should it be re-elected, could opt to shift the qualification criteria from national insurance to income tax, which self-employed workers also pay on the profits they make.

This could instead determine the benefits and pensions they are entitled to.

The Tory manifesto also committed to cut employee national insurance to 6% by April 2027, as part of a long-term plan to “keep cutting national insurance until it’s gone”.

In total, the package of employee and self-employed national insurance cuts – combined with the previously announced “triple lock plus” tax break for pensioners, child benefit changes, stamp duty and capital gains tax measures – would amount to a £17.2 billion annual cost to the Exchequer by 2029-30.

Rishi Sunak said it would be paid for by curbing the “unsustainable” rise in welfare.

Paul Johnson, director of the Institute for Fiscal Studies (IFS), said he had a “degree of scepticism” over the “uncertain, unspecific and apparently victimless savings” that will pay for the tax cuts.

He added: “The promise to abolish the main rate of self-employed NI contributions altogether would doubtless be welcomed by the self-employed but would further entrench the tax advantages of self-employment over employment.”