Philip Hammond has been accused of breaking a key Conservative manifesto pledge after his first budget announced increases in national insurance contributions (NICs) for the self-employed to help solve the funding crisis in social care.

The chancellor’s attempt at a low-key package threatened to be overshadowed by a row over whether the plan to bring NICs for the employed and self-employed into line would both stifle enterprise and break a commitment made by David Cameron in 2015.

The Conservatives vowed there would be no increases in income tax, VAT or NICs for the duration of the 2015-2020 parliament and during the last election campaign senior Tories accused then Labour leader Ed Miliband and his shadow chancellor, Ed Balls, of plotting to raise NICs, “hitting hard-working taxpayers and costing jobs”.

Hammond said the weakness of the government’s finances meant he had to raise money in order to provide an extra £2bn for social care over the next three years, provide help for companies struggling with looming business rate increases and fund higher spending on education and training. The chancellor said he would raise the rate on class 4 NICs paid by the self-employed from 9% to 10% next year, with a further increase to 11% in 2019.



The budget provided a modest £1.7bn stimulus to an economy Hammond said had continued to “confound the commentators with robust growth” but he hinted at further measures in the autumn statement. “The deficit is down but debt is still too high,” the chancellor said as he banked a one-off windfall from stronger-than-expected tax receipts since the EU referendum.

The NICs move will boost Treasury revenues by just over £600m in 2019-20 but was condemned by Labour, the Liberal Democrats and some Conservatives.



The Tory party’s 2015 manifesto pledge on tax. Photograph: Handout

John McDonnell, Labour shadow chancellor, said: “The Tories talk of being a ‘workers’ party’, but they have betrayed millions of people today, by breaking another manifesto commitment.”

Liberal Democrat leader Tim Farron said the measures would “clobber white-van man”, and called it an “omNICshambles. This slimmed-down budget is only 64 pages long but shows the slimmed-down ambition of this government.”

Tory former ministers, John Redwood and Andrew Murrison, both said the plans might harm self-employed businesses, with Murrison telling the Commons: “It’s very important to ensure that we don’t disadvantage self-employed people. This party always has been and I hope always will be the party that supports white-van man – and may I say on this particular day, also white-van woman.”

Redwood added: “I always think it is a good idea to tax things you don’t approve of very much ... I don’t think we should be going out of our way to tax work and enterprise and success.”

Hammond also courted unpopularity with Conservative supporters by cutting the tax-free allowance on dividends for directors and shareholders from £5,000 a year to £2,000, a decision that will affect more than 2 million taxpayers. The chancellor justified both decisions as necessary to make the tax system fairer.

He said an employee earning £32,000 would incur together with their employer about £6,170 of NICs, while a self-employed person earning the equivalent amount would pay only £2,300.

Hammond said: “The difference in national insurance contributions is no longer justified by the difference in benefits entitlement. Employed and self-employed alike use our public services in the same way, but they are not paying for them in the same way.”

A Treasury spokeswoman later sought to shrug off the claim that the party was breaching the manifesto promise, saying it had been implemented by a piece of legislation – George Osborne’s “tax lock” – which didn’t mention specific classes of NICs. “The manifesto is not the place you should be looking for it; you should be looking for it in the legislation,” she said.



The chancellor made only glancing reference to Britain’s looming exit from the EU but said the government was intent on keeping Britain at the cutting edge of the global economy with a focus on education, skills and productivity.



The independent Office for Budget Responsibility said the short-term prospects for the economy were brighter than it had envisaged in the autumn statement last November. It revised up its growth forecast from 1.4% to 2% for 2017 and said the budget deficit would be more than £16bn lower, at £51.7bn.

But the OBR said the improvement would be short-lived. Growth in future years would be slightly weaker than previously expected and a deficit of £17bn had been pencilled in for 2021-22 – unchanged from the autumn statement. On the OBR’s current projections, the government finances will not be back in the black until the end of the 2020-25 parliament.

Matthew Taylor, the former New Labour adviser who is currently reviewing the changing nature of the labour market for Theresa May, said he welcomed the NICs move. He said his report, due to be published later this year, would recommend moving towards taxing labour, rather than employment status.

He said he had written to Hammond last weekend, because without Wednesday’s announcements, a separate decision to abolish class 2 NICs, also due to come into force in April 2018, would have cut the tax bill for many lower-paid self-employed workers, widening the gap with employees.

Hammond’s decision to spend an extra £2bn on social care over the next three years followed a simmering rebellion by Tory MPs concerned about the state of public services in their constituencies.

But the cash was dismissed as a “sticking plaster” by campaigners. Dot Gibson, general secretary of the National Pensioners Convention, said: “The additional £2bn from the chancellor won’t reverse the £5bn cut that the service has suffered since 2010, it won’t give services to the 1.2 million people who have been rationed out of the system and it won’t ease the burden on millions of unpaid older carers who are working 24/7 to look after their loved ones.”

The government was also criticised by the Association of British Insurers for a self-inflicted near-£6bn hit to its finances as a result of the increased bill faced by the NHS and other parts of the public sector due to changes to the way compensation awards for botched operations and other errors are calculated.