THERESA May has been accused of presiding over a “chaotic” Government after her Chancellor performed a humiliating U-turn and dropped the controversial plan to raise National Insurance Contributions for 2.5 million self-employed people.

Philip Hammond was heckled by MPs as, just a week after delivering his first Budget, he told the Commons he had decided after intense discussions with disgruntled Conservative colleagues to drop its centrepiece policy.

If implemented, it would, on average, have cost window cleaners, taxi drivers, hairdressers and plumbers, among others, around £250 a year.

READ MORE: New figures reveal over-50s are the fastest growing part of workforce

The Chancellor, who made the decision to drop the NICs hike at an 8am breakfast meeting with the Prime Minister yesterday, informed Conservative colleagues in a letter just 20 minutes before the weekly PMQs.

He explained that he wanted to abide by the “spirit” as well as the letter of the 2015 Tory manifesto, which clearly stated that a Conservative government would not put up NICs. In his letter, Mr Hammond made clear: “There will be no increases in NICs this Parliament."

The about-face now means there is a £2 billion gap in Treasury finances, which, the Chancellor said, would be filled when he delivers his Budget in the Autumn.

He told MPs: "This Government sets great store in the faith and trust of the British people, especially as we embark on the process of negotiating our exit from the European Union.

"By making this change today, we are listening to our colleagues and demonstrating our determination to fulfil both the letter and the spirit of our manifesto tax commitments."

John McDonnell for Labour said the Government was in "chaos" and called on Mr Hammond to apologise.

"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," declared the Shadow Chancellor.

Earlier, at PMQs, Angus Robertson, the SNP's Westminster leader, said Mrs May had been forced into a "screeching embarrassing U-turn".

His colleague, Stewart Hosie, the party’s economy spokesman, said he welcomed it because the NICs hike would have affected around 140,000 Scottish self-employed people.

He noted: “I said last week that this decision would come back to haunt the Chancellor, and it has, but little did I expect that when it did, No 10 and No 11 would be briefing against each other. It is almost as if the halcyon days of Gordon Brown and Tony Blair never really went away.”

The Chancellor, who sat alongside Mrs May in the Commons, had argued that the increase in Class 4 NICs had been necessary to address the growing unfairness in the tax system over the treatment of employees and the self-employed.

He explained that a planned consultation - due to be carried out over the summer - looking at the different parental benefit entitlements enjoyed by employees and the self-employed would be widened to look at other areas of different treatment.

It will be carried out alongside a review by Matthew Taylor, a former adviser to Tony Blair, of the implications of different ways of working for employment rights.

"Once we have completed these pieces of work, the Government will set out how it intends to take forward and fund reforms in this area," Mr Hammond said.

"The Government has missed an opportunity to correct a big structural flaw in our tax system which allows better-off self-employed workers to pay far less tax than employees," he said.

READ MORE: New figures reveal over-50s are the fastest growing part of workforce

Meantime, during Commons exchanges Alex Salmond asked the Chancellor whether it had been he or Mrs May who had first realised the planned NICs hike had breached the Tory manifesto pledge.

Mr Hammond replied: “It was actually Laura Kuenssberg on the BBC, shortly after I said it in the Budget speech," but later stressed she was the first person “outside” the Government to make the point.

Later, on a Point of Order, the former First Minister quipped: “May I suggest that Laura Kuenssberg of the BBC should be brought into the Cabinet so that its members can get it right the first time.”