Chancellor Philip Hammond has dropped proposals to raise National Insurance Contributions (NICs) for the self-employed, as announced in his Budget speech last week.
In a letter to Tory MPs, Hammond (pictured) said the government would backtrack on the proposals following criticism the party was breaking its election manifesto.
The Chancellor had told parliament in his Budget speech that Class 4 NICs for the self-employed would rise from 9% to 10% in 2018 and then up a further percentage point to 11% in 2019.
He said the rate hike was being introduced in an effort to reduce the gap in rates paid by the self-employed and by employees.
The measure caused a furious backlash from Conservative backbenchers, who claimed it was breaking the Conservative's 2015 manifesto, in which the party said it would not raise NIC rates, income tax or VAT.
In the letter the Chancellor said: "There will be no increases in... rates in this Parliament.
"It is very important both to me and to the Prime Minister that we are compliant not just with the letter, but also with the spirit, of the commitments that were made."
But he maintained: "It remains our judgement that the current differences in benefit entitlement no longer justify the scale of difference in the level of total NICs paid in respect of employees and the self-employed."
Prime Minister Theresa May had already signalled a rowing back on Hammond's plans in a speech in Brussels on 9 March, when she said the measure had not been included in the Finance Bill but would be brought in as part of separate legislation in the autumn.
In Prime Minister's Questions on Wednesday May said the government would leave NICs alone for the rest of the current parliament.
'Roller-coaster policy making'
Meanwhile former pensions minister, turned director of policy at Royal London, Steve Webb, accused the government of "a roller-coaster of policy making".
"First we had a dividend tax break introduced and slashed a year later. Then we had a National Insurance rise for the self-employed reversed within days of being announced. What is needed is a long-term strategy for tax, not a series of short-term announcements," he said.
He also called on the government to commit to stop meddling with pension tax relief. "That would provide savers with the certainty that they urgently need," he said.
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