Make cheating employers pay, not lone entrepreneurs

 

Many politicians protesting, quite rightly, about the unfair hike in National Insurance contributions for the self-employed have missed the real solution.

The important contribution is the one paid by employers, at 13.8 per cent of wages for abroad middle range of employees. It is an expensive outlay on workers, and often claimed to be a deterrent to increasing the payroll.

More unscrupulous companies, mostly but not all US-owned multinationals, are evading this tax. They do not employ most of their workforce, but engage people labelled as self-employed.

As one who has been self-employed for many years, even while holding such executive positions as business editor on national newspapers, I recall that becoming self-employed was beset with hurdles. A principal test was to prove that you decided how the task was to be performed, not those paying you.

Thus many were born into self-employment, such as doctors, lawyers, MPs, consultants in a wide range of trades and professions. More of us acquired it, often with difficulty, while vast numbers had self-employment thrust upon them, unwillingly.

As Liberals we believe in encouraging the individual spirit of enterprise and entrepreneurs, displayed by many of the self-employed. Some move on to start successful businesses.

But as guardians of just and fair play in employment, as in most other areas of life, we Liberal Democrats must condemn those who take improper advantage of the vulnerable and needy.

Roughly some 3 million are forced to accept scandalous treatment of so-called self-employment, especially those who endure the inhuman  practice of zero-hour contracts that drive a cart-and-horses though the spirit and often letter of employment law.

Of course, those who prefer to be self-employed and work part-time, for reasons ranging from childcare responsibilities, study, sport and other hobbies and interests, must be allowed to negotiate more flexible work agreements, fewer or a different pattern of hours.

But for the great majority who take home less than a Living Wage, and would prefer to work a fuller week, being paid a proper rate for the job, we must outlaw the bully-boys and robber-bosses who make 19th century mill owners seem enlightened and caring by comparison. First by ensuring their self-employed armies meet existing legal requirements. And by bringing in new legislation if their lawyers find a way round it.

By increasing the number of the lawfully properly employed, with all employers paying the full rate of NI, we would raise enough to be able to leave the lower freelance NI rates at their existing level. Receipt of another 3 million Employer NI contributions would allow the Treasury to relax increases for the hard-working self-employed.

It is largely a matter of political will, having the guts to treat all workers decently and face down the wrong kind of employer.

* Jonathan Hunt is President of Camberwell & Peckham local party and chair of the Southwark Co-ordinating Committee. He is an elected Life Member of the NUJ, and a former parliamentary candidate.

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17 Comments

  • Simon McGrath 15th Mar '17 - 2:47pm

    “More unscrupulous companies, mostly but not all US-owned multinationals, are evading this tax. They do not employ most of their workforce, but engage people labelled as self-employed.”

    Could you share some evidence for this please ?

  • Trefor Hunter 15th Mar '17 - 2:57pm

    And the BBC, who have casualised nearly all their technical former staff. Lets not forget.

  • Overtaken by events …. I set up Jonathan’s post before the news broke about the U-turn. Maybe people would like to comment about that?

    http://www.bbc.co.uk/news/uk-politics-39278968

  • “unfair”

    How exactly was wanting the self-employed to pay the same rate of tax as everyone else unfair???

    It was the first thing the Tories have got right in 300 years, but they’ve been forced to backtrack because of the knee-jerk, populist red-tops.

    Meanwhile, public sector workers are kicked from pillar to post with year after year of real-term pay cuts and increased pension contributions to pay for a recession caused by the private sector.

  • This is one Tory policy that I could support. Where’s the fairness in giving the self-employed an arbitrary tax advantage, worth much more than the gap in benefits?

  • The threat of increasing NI for the self employed has receded for the moment, but will return. Rather than increase the NI contributions of the self employed themselves, it might be a better alternative to require (larger) firms, who contract these workers to pay the equivalent to what they have to pay for employees, or some variant on that, if they take a cut of income from taxi fares etc. These companies could also be required to pay towards pensions. I would suggest, though, that these NI contributions, would not have to be paid by small companies and individuals.

  • Laurence Cox 15th Mar '17 - 7:47pm

    Currently, Class 2 NI contributions pay for the following benefits for the self-employed: new state pension, contribution-based employment and support allowance, maternity allowance, and bereavement benefits. When Class 2 contributions are abolished in April 2018, the self-employed will be getting these benefits for free, while those employed have to pay for them (and only get JSA in addition). In effect, Hammond is saying that JSA is worth 3% of every employee’s salary even though the cost of JSA is tiny compared with what is spent on the state pension. It means that those employed, and under state retirement age will be subsidising the self-employed even more.

  • jonathan Hunt 15th Mar '17 - 8:03pm

    Thanks Mary for pointing out that my piece, largely written on Sunday and posted this afternoon, was partly overcome by a timid Theresa climb-down, the first by the devious dictator who pretends she is unassailable. Let’s hope these Tory MPs catch the rebellious habit.

    But Hammond still needs to find a few billion more, and I hope he will consider my solution and restore justice and decency in employment practices. He would achieve this by changing the status of those poor souls pushed into unlawfully low wages by being falsely declared self-employed.

    They should be given proper jobs by their unscrupulous (not having scruples, shameless, unprincipled, Oxford Concise definition, Simon) users and abusers of labour, as if people never martter.

    If the genuinely self-employed were given all the benefits that most employed people receive, there might be a case for upping their NI contributions. But it would be accompanied by a tide of self-employed workers sacking themselves and joining the ranks of the unemployed.

  • Laurence Cox 15th Mar '17 - 10:00pm

    @Jonathan Hunt
    The only benefit that employed workers paying Class 1 contributions get that the self-employed do not is JSA. See:

    https://www.gov.uk/national-insurance/what-national-insurance-is-for

    When you consider that the Government takes 12% from the employee plus 13.8% from the employer in Class 1 NI, that could otherwise be used to pay higher wages to employees, it is clear that companies can pay people who are self-employed higher rates than they could if they were employed. This applies equally if the company owner and the self-employed are the same person.

    Putting it another way, a self-employed person is paying an effective tax rate of 29% while the employee is paying an effective tax rate of 40.25% (1-68/113.8). Indeed, the self-employed can reduce their tax further by taking more of their total income as profits, which attract an even lower tax rate (20%). It is not sufficient just to deal with the unscrupulous companies; we also need to ensure that the genuinely self-employed and those who have made themselves into companies are paying their fair share of tax.

  • jonathan Hunt 15th Mar '17 - 10:33pm

    Lawrence: I accept that the new pension arrangements have given the self-employed a bonus they had not previously enjoyed, But not to the value that Hammond (with May’s approval given that she have read the Budget speech) wished to take.

    But few of the self-employed enjoy paid holidays, and carry the risks of periods of non-employments However, they do enjoy the ability to claim expenses for office costs, cars, phones, travel, etc or a part thereof that most employees do not. they probably are better paid, but that is a trade-off for taking greater risks.

    But it is not the point I am making, which is that millions suffer because they have been designed self-employed by government to get them off the unemployed register and / or offered work so that employers are not saddled with NI or having to treat people like human beings, but units of labour along with the other components of business, land and capital.

  • Paid holidays and risks are completely irrelevant – that’s for the self-employed to price into their rates. Similarly, the equivalent of the employer contribution should be paid by the self-employed.

    You say yourself that the problem of inappropriate self-employment is driven at least partly by the lower tax liability. The right solution is to make the tax fair.

  • jonathan Hunt 16th Mar '17 - 12:33pm

    Jason, I am not defending those who choose self-employment for the freedom it offers, plus greater opportunities and potentially higher incomes.

    I am attacking government agencies and employers who force employees into self-employment almost against their will or as the only option of obtaining work.

    Such practices as zero-hour contracts are illiberal, unjust and break another old HMRC test of qualifying for self-employment in that they are not free to work for other companies.

  • Laurence Cox 16th Mar '17 - 3:21pm

    Jonathan,
    I don’t disagree with you that we need to legislate against companies like Uber, who treat their drivers as self-employed when they are in reality employees of the company. But I still object to the assertion that you began your article with: “Many politicians protesting, quite rightly, about the unfair hike in National Insurance contributions for the self-employed….”

    You argue that by forcing more people into the employee category, and thus increasing the Government’s tax take, the special treatment that the self-employed already receive can be maintained. I suggest that if you compare an employee and a self-employed contractor who cost a company the same amount then the employee only receives 59.75% of it, while the contractor receives 71%. This is worth about twice the employee’s holiday pay, while the contractor is at liberty to insure himself or herself against being unable to work, for example through illness, and this insurance is itself a tax-deductable expense.

    When both the Institute for Fiscal Studies and the Resolution Foundation agree that the original Budget decision was the right one, complaints that come from the self-employed (particularly the well-off self-employed working for national newspapers) sound suspiciously like special pleading.

  • jonathan Hunt 16th Mar '17 - 11:24pm

    Lawrence — you correct in pointing out advantages that skilled and competent workers can enjoy. Those I am concerned about are the ones who are not, and who should not be in this sector because their earnings are invariably less than they would get under the minimum / living wage.

    Most are living without a safety net, when they should have he State one and are at the mercy of companies who have little concern for people as people.

  • The important contribution is the one paid by employers, …
    More unscrupulous companies, mostly but not all US-owned multinationals, are evading this tax.

    I don’t know about evasion but many sensible UK companies will be avoiding this tax!

    For example, if you are contributing to your pension scheme, your contribution will come out of income that is subject to NI whereas the company contribution will be deducted before NI, similar considerations apply to other ways of paying employees, eg. bonus and reward schemes, dividends etc. Hence why sensible employers have adopted salary sacrifice schemes to allow employee contributions to be made by the company in a win-win arrangement.

    I think many companies, eg. Uber, Pimlico Plumbers et al. aren’t so much wanting to avoid NI but the entire overhead of employees for various reasons – in Uber’s case it is obvious, the additional costs make’s their business model even more unsustainable than it already is.

  • Peter Watson 17th Mar '17 - 12:25pm

    @Roland “I think many companies … aren’t so much wanting to avoid NI but the entire overhead of employees for various reasons”
    I think this is by far the most important aspect of this debate, rather than gloating at Philip Hammond’s embarrassment or his attempt to address a big issue by tinkering at the edges with NI. A range of issues, from zero hours contracts to disguised employment through limited companies, combine to change the way people work and are paid in this country, in some cases sacrificing employment rights in return for increased income and in other cases simply losing those rights.
    Perhaps there is an opportunity for Lib Dems, in theory in thrall to neither employers nor unions, to lead in a discussion on how a balance can be struck between employers’ obligations, workers’ rights, flexibility, taxation of employment, etc.

  • Peter Watson 20th Mar '17 - 12:27am

    This news story: https://www.theguardian.com/business/2017/mar/19/uk-mail-driver-unable-to-work-car-accident-charged-800-pounds appears to highlight another troubling aspect of employment in a “gig economy”.
    As “the free market, free trade, pro-business party”, do Lib Dems support this liberalisation of the workforce, or if not, what does the party want to do about it?

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