Thousands of families to lose 16 per cent of income after National Insurance rise and cuts

Universal Credit cuts and the National Insurance rise will hit families hard when taken together

The hit to incomes combines with a Universal Credit cut (iStock)

The Chancellor’s tax rise for self-employed people could cost thousands of families up to 16 per cent of their income when taken alongside other previously announced changes, research suggests.

The House of Commons Library found that a self-employed single parent with two children on £10,000 a year would face a 16 per cent of their income once all the changes come into effect.

The Library, which was commissioned to look at the effect of the National Insurance rise by Labour MP Owen Smith, found that other self-employed parents with incomes of £20,000 would see a similar income cut of around 12 per cent.

The research takes into account the cumulative effect of the Government’s £3 billion a year cut to the Universal Credit work allowance. Around a million self-employed people are expected to move onto the Government’s new benefit system.

The research suggests a family earning £10,000 a year would see their income rise to £16,457 if the work allowance cuts and NIC rise was cancelled.

Theresa May could be facing a backbench revolt on the issue, over a dozen Tory MPs speaking out against the policy and threatening the Government’s slim majority in the House of Commons.

The Government justifies the NICs cut on the basis that it removes distortions from the tax system. It is backed by the prestigious Institute for Fiscal Studies.

“I think we have got a situation where we’ve closed the gap in terms of benefits entitlements, effectively eliminated it, that we have got a growing situation with the costs and the sense that if we don’t take action … we are placing an unfair burden on the 85 per cent of employees,” chief secretary to the Treasury David Gauke said on Budget day.

Labour leader Jeremy Corbyn criticised the Government for going ahead with the tax rise while it cut corporation tax sharply. He called for the two policies to be reversed and for a maximum wage cap based on the radios of wages between the highest and lowest paid workers.

Owen Smith said: “This was clearly the greatest mistake in Philip Hammond’s budget and Labour should be focusing all our fire on reversing this measure in the coming weeks, while every Tory MP needs to ask themselves how they can claim to be the party of entrepreneurship and low taxes while supporting Hammond’s job tax on the self-employed."