PM defends Chancellor after 'humiliating' NICs U-turn

The climbdown over the controversial changes to National Insurance rates came only a week after they were first announced in the Spring Budget, causing an uproar among Tory MPs who had been pressed to defend the measure.

Explaining his decision in the Commons, Mr Hammond claimed the Government remains committed to tackling unfairness in the tax system but after listening “to colleagues and the public” had decided to not to proceed with the changes.

But opposition MPs branded the retreat a “shambles”, and demanded an explanation of how the Chancellor intends to fill the resulting £2bn black hole.

Confirmation of the U-turn was initially published in a letter to Conservative MPs, sent out just minutes before Theresa May appeared at the Despatch Box for PMQs.

The news broke while the International Development Minister Rory Stewart was still defending the measure live on television, and was met with disbelief by some MPs who felt they had been “hung out to dry” after spending a week justifying the measure to constituents and the media.

The letter stated that plans to increase class 4 National Insurance contributions (NICs) by 2 percent sought to restore balance to the tax system, and that the Government continues to believe “this is the right approach”.

But Mr Hammond added that “in light of what has emerged as a clear view among colleagues” he had “decided not to proceed”.

Both the Chancellor and the Prime Minister continued to deny that the proposed changes amounted to a broken manifesto pledge, despite the 2015 general election document specifying the party would make “no increase” in NICs or income tax.

However, speaking in the chamber yesterday Mr Hammond acknowledged that the reforms may not be “compatible” with the “wider understanding of the spirit of that commitment”.

A Downing Street spokesman later denied Theresa May has any doubts about Mr Hammond’s judgement as a result of the climbdown, telling reporters the Prime Minister has “full confidence” in him.

But both Labour and Lib Dem MPs demanded an apology from the Government, with Shadow Chancellor John McDonnell claiming Mr Hammond’s authority was “shredded”.

“Large numbers of self-employed people have been put through the mangle over the past week... Nobody should be too arrogant to use the word ‘sorry’ when they blunder so disastrously,” he said.

"It's shocking and humiliating that the Chancellor has been forced to come here to reverse a key Budget decision announced less than a week ago."

Shadow Business Minister Gill Furniss added: “The Prime Minister should seriously consider her Chancellor’s position because as of today, the public can’t trust the Chancellor to keep his word.

"After just one budget Hammond has lost all credibility. Do the Tories even know what was in their own manifesto? "

MPs also expressed outrage that Mr Hammond will not set out plans to make up for the £2bn shortfall from the U-turn until the Autumn.