The Chancellor today labelled the rules around National Insurance contributions for the self-employed as unjustified and announced plans to change them.

Philip Hammond said that “such dramatically different treatment of two people earning essentially the same undermines the fairness of the tax system”.

The main rate of Class 4 NICs for the self-employed will increase by 1% to 10%, with a further 1% increase in April 2019.

The government had already announced that it will abolish Class 2 NICs – an at-rate charge on the self-employed – from April 2018.

Since April 2016, the self-employed also have access to the same State Pension as employees, worth £1,800 a year more to a self- employed individual than under the previous system, officials stated.

The main rate of Class 4 NICs will increase from 9% to 10% in April 2018, and to 11% in April 2019 “to reduce the differential and reflect more equal pension entitlement”, the Treasury said.

Taken together with the abolition of Class 2 NICs, this means that only self-employed individuals with profits above £16,250 will have to pay more NICs, officials stated.

Mr Hammond said: “Employed and self-employed alike use our public services in the same way, but they are not paying for them in the same way.

“The lower National Insurance paid by the self-employed is forecast to cost our public finances over £5 billion this year alone. That is not fair to the 85% of workers who are employees.

“The abolition of Class 2 NICs for self-employed people, announced by my predecessor in 2016 and due to take effect in 2018, would further increase the gap between employment and self-employment.

‘To be able to support our public services in this budget, and to improve the fairness of the tax system, I will act to reduce the gap to better reflect the current differences in state benefits. I have considered the possibility of simply reversing the decision to abolish Class 2 contributions, but the Class 2 NIC is regressive and outdated. It is right that it should go.”

He said: “So, instead, from April 2018, when the Class 2 NIC is abolished, the main rate of Class 4 NICs for the self-employed will increase by 1% to 10%, with a further 1% increase in April 2019.

“The combination of the abolition of Class 2 and the Class 4 increases I have announced today, raises a net £145m a year for our public services by 2021-22, an average of around 60p a week per self-employed person in this country.

“And since Class 2 contributions are payable at a flat rate, while Class 4 is chargeable as a proportion of profits, all self-employed people earning less than £16,250 will still see a reduction in their total NICs bill.”

He said: “This change reduces the unfairness in the NICs system and reflects more accurately the current differences in benefits available from the state.”