The self-employed have been particularly hard-hit during the
Coronavirus. There are longstanding arguments for realigning the
borders between employees and the self-employed, but they need to
be thought through, says new briefing paper
– The self-employed have undoubtedly lost out
during this pandemic – yet the Chancellor has hinted they may be
taxed more in the future in return for assistance provided across
2020;
– The tax authorities have long held concern that the
self-employed do not pay enough income tax and, particularly,
national insurance contributions;
– Meanwhile, others have pushed for welfare benefits and
employment rights to the self-employed;
– This has triggered a pincer movement: greater
entitlements at the cost of paying more to the Exchequer and
tighter regulation;
– Given the importance of getting people back to work
post-Covid, it would be unwise to penalise the self-employed
unnecessarily or deter others from entering into
self-employment;
– Changes to their status could take place in the context
of “long-overdue” merger between national insurance and income
tax;
– Indeed, the end of the pandemic could be the
right moment for radical reform.
A new briefing paper from free-market think tank the
Institute of Economic Affairs, authored by IEA Editorial and
Research Fellow Professor Len Shackleton, asks: Being your own
boss – should the Government care?
Millions of UK citizens work on their own account, rather
than for an employer. Motives differ, but tend to be a mix of
independence, lifestyle, or financial reward. Some view the
self-employed as the vanguard of an entrepreneurial and
innovative economy; others perceive self-employment as a tax
dodge. And some worry that many of the self-employed are victims,
pointing to poorly paid and insecure work.
Regardless, Professor Shackleton argues, it is an important
form of employment that contributed disproportionately to the
growth in total employment in the decade following the last
recession. But self-employed workers have lost out badly over the
course of the pandemic. Their numbers have thus far fallen more
sharply than the number of employees, and there is evidence that
government assistance has been poorly targeted, with over half of
the self-employed receiving no help.
Yet the Chancellor has hinted that, in return for the
assistance the government has granted, the self-employed may be
taxed more heavily in the future. Last week, the government also
launched a consultation on alleged VAT losses in the 'sharing
economy,’ which encompasses some newer forms of
self-employment.
As trade unions and others argue for welfare benefits and
employment rights, we are witnessing a “pincer movement” on the
self-employed, the author says, with greater entitlements but at
the cost of paying more to the Exchequer and tighter
regulation.
The self-employed are an extremely heterogeneous group. The
danger is that new ‘one size fits all’ legislation will have
unintended consequences such as deterring many people from
entering self-employment who would gain from doing so, and
driving more activities into the informal economy.
There are no very strong public policy grounds for
subsidising self-employed status, but there are no grounds for
deterring it either. In the current climate, given the importance
of getting people back into work, it could be “unwise to penalise
the self-employed unnecessarily”.
Changes to the status of self-employed workers could take
place in the context of a long-overdue merger between national
insurance and income tax. The end of the pandemic, and the huge
changes it will make to the economy, may be a timely moment to
consider such radical reform.
Professor Len Shackleton, Editorial and Research
Fellow at the Institute of Economic Affairs and author
of Being your own boss: Should
the government care?,
said:
“Self-employment is for many a
risky and often lonely business. Those undertaking it should not
be singled out for higher taxes as a payback for government help
during the pandemic – particularly as this help was badly
targeted and failed to reach the majority of those working for
themselves. The self-employed are a hugely varied group with many
different motives and circumstances. As the economy recovers, we
should not discourage those who want to be their own boss with
hasty changes to the tax and national insurance system which fail
to take account of this diversity.”
