Philip Hammond has decided to scrap plans to raise national insurance on the self-employed a week after he announced them in the Budget, following a furious reaction from newspapers and backbench Conservative MPs.
The chancellor announced the U-turn in a letter to all Tory MPs informing them he will no longer go ahead with the proposal, which would have increased taxes for 1.6 million people by an average of £240 a year.
The proposal appeared to break a 2015 manifesto pledge that there would be no increase in national insurance payments under a Conservative government.
"It is very important both to me and to the Prime Minister that we are compliant not just with the letter, but also the spirit, of the commitments that were made," the chancellor wrote in the letter.
"In light of what has emerged as a clear view among colleagues and significant section of the public, I have decided not to proceed with the Class 4 NIC measures set out in the Budget."
In the House of Commons later on Wednesday, the chancellor continued to defend the decision, hewing to the same language used in his letter, and denied that the U-turn was made at Theresa May's request.
“The decision was made by myself and the prime minister,” Hammond said, side-stepping a question on whether the cabinet had been informed of the U-turn prior to its announcement.
Philip Hammond denies the u turn was PM's decision - the decision was taken at 8am he said And came to the house at earliest opportunity
John McDonnell labelled the change "chaos". "It is shocking and humiliating, that the chancellor has been forced to come here and reverse a key Budget decision, announced less than a week ago," he told the chamber.
"If the chancellor had spent less time writing stale jokes for his speech, and the prime minister less time laughing like a feeding seal on those benches, we would not have been landed in this mess."
Later on, in an awkward slip-up, when challenged by Alex Salmond on who realised the change broke with the Conservative manifesto, Hammond appeared to suggest it was the BBC.
"I think credit where credit is due, I think it was actually Laura Kuenssberg on the BBC, shortly after I said it in the Budget speech," he told the chamber.
He moved swiftly to clarify – following ridicule from Labour's Yvette Cooper – that he meant the BBC's political editor was the "first person outside the chamber" to raise the issue.
Apparently it took @bbclaurak to point out to the Chancellor that he'd breeched his own manifesto commitment #really? #Budget17
The change was designed to bring the 15% of workers who are not employed directly by a single employer into line with the majority of the workforce who pay tax on their payroll. The government argued that this was fair, while some of the policy's few public defenders were left-leaning think tanks who pointed out the majority of the extra tax would be paid by high earners.
But it was attacked for allegedly breaking the government's pledge. The Treasury attempted to insist that the manifesto pledge only applied to a certain sort of national insurance payments but dozens of Conservative MPs queued up to attack the policy, portraying it as an attack on hard-working entrepreneurs.
Theresa May initially attempted to delay the row by insisting any changes would only be introduced in the autumn. But even this proved difficult and the policy has now been completely abandoned.
Tory backbenchers who publicly opposed the increase over the previous week quickly closed ranks, praising the chancellor for listening to their concerns and insisted the party is united.
Hammond changing his mind was “a demonstration of strength rather than weakness”, Bob Blackman said. Anne Marie Trevelyan said Hammond was still seen within the party as “doing a really sound job” in the Treasury, and described the national insurance blunder an an aberration in an "otherwise excellent Budget".
John Redwood told BuzzFeed News he was confident voters would still have confidence in the chancellor even though he broke a manifesto pledge not to raise taxes. And Nigel Evans said Hammond would’ve been in a weaker position if the government waited longer to change its mind.
By changing course this morning, minutes before Prime Minister's Questions, Evans said, the government had dealt with the issue with a "swift surgical strike" that caught Labour leader Jeremy Corbyn on the hop.
The decision to drop the policy did infuriate some loyalist Conservative MPs who felt it had been a good idea.
Blimey. I've been vigorously defending it... https://t.co/WQKXZYWgaK
The decision to abandon the policy now leaves a major headache for Hammond, whose position could be under threat. The tax rise was due to raise more than £2 billion over the next four years, which will now leave a hole in the government accounts that will have to be filled with either other tax increases or spending cuts.