Winning the self-employed vote

Writing in Tuesday’s Times, Paul Johnson, a director of the Institute for Fiscal Studies, says some 15% of the UK workforce is now classed as self-employed or as an owner/manager. Among them is me, now in my 17th year of my second period of self-employment. Indeed, I am the fourth generation of small business petit bourgeoisie Roches (so far, no generation has managed to propel us permanently to the haute bourgeoisie).

Many of the new self-employed are part of what is now known as the “gig economy”: living on short term contracts and often experiencing a financial life of feast and famine. Family insecurity and financial instability are frequent visitors, especially in the early years of a business, when getting established can be a real struggle.

Some new businesses, a very small minority, will grow to be giants. Others will grow to modest size and give their owners a comfortable life. Others will get by, with good years and bad. A Royal Society of Arts study suggests that 55% will not reach their fifth birthday.

Businesses fail for many reasons. Early years failure is a sad but inevitable part of the hard world of business. The biggest single reason for failure is cash flow problems, often caused by late payment by customers. Sometimes it is the taxman who drives people into difficulty.

Dealing with the taxman is about to get more time-consuming and more expensive for business. Next year, starting with very small self-employed businesses, tax returns will be need to be filed online five times a year, with payments due four times a year.

Expect lots of teething problems with the new system. Expect people being driven out of business because of mistakes by the taxman. Expect howls of protests from businesses being told that expenses they for years have thought tax deductible will not be entertained any longer.

Now, nobody should be allowed to make claims that are not legal and everyone should pay the right tax due and at the right time. But the small business sector – often individuals working alone from home – is feeling under increasing strain.

No political party seems to be loudly standing up for the self-employed. The Tories say they are the party of business, though I can’t recall any significant statements of support in recent times.

The nature of self-employment has changed greatly in the last dozen years. Many professional in media, advertising, accountancy, public relations, graphic design, IT and computing, in broadcasting, magazines and newspapers and a dozen other jobs are done by self-employed people and those on short term contracts. Many hold views of the world that make them natural entrepreneurs and social democrats. Lib Dems need to be carving out policies and messages to reach and influence these people.

We should be talking about supporting them and about how we support the vital public services – particularly the NHS – that Lib Dems hold dear and fight for daily. Self-employment and illness can be devastating. Being ill often means little or no income and falling back on savings (if lucky enough to have them).

Most of the 15 million self-employed are in England. Not only should we be helping then grow and succeed for the long term, we should be seeking to win them as confirmed supporters and confirmed Lib Dem voters.

* Martin Roche is a member of Canterbury Liberal Democrats

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13 Comments

  • Richard Warren 9th Feb '17 - 10:18am

    Martin,

    Yes, fully agree with you. As a member of the Lumpen Petit Bourgeois for the past 25 years I’ve found my lot becoming increasingly difficult, and I know I’m not alone. Free education, the NHS and low cost social housing make self employment possible for many people, so those are three things we ought to support, though we need to think about how we can fund them sustainably. Growing bureaucracy, such as submitting those tax returns four times a year, is unwelcome and ought to be resisted. How we get corporations to deal with the self-employed better is a difficult task. In effect, many self-employed have become a reserve army of labour for the corporations…

  • Andrew McCaig 9th Feb '17 - 10:40am

    I think the other huge time bomb for the self-employed is in pensions.. I have worked in a University all my career and have the huge advantage that my employer has been putting 12-15% of my salary into my pension (even though the terms of that have just got much worse). They did this even at a time early in my career when I would have spent that money on buying food rather than going further into debt if they had given it to me (a situation cured by inflation, at the time). If you compound the lack of a decent pension with renting a house all your life, you can be in a really bad situation in retirement when most homeowners no longer have to pay for housing and also have equity they can release if needed…
    People really do ignore the fact that most self-employed people are not at all well off…

  • Peter Watson 9th Feb '17 - 10:58am

    “some 15% of the UK workforce is now classed as self-employed or as an owner/manager”
    I’m always a little wary of figures like this, and the interpretation by some that this is all about small businesses that want to grow.
    I have worked with many people, and used to be one, who are employed as contractors / temporary workers / agency staff / etc., but who are notionally the director of a limited company (or have some similar arrangement) which is simply a means to minimise tax bills (though often looks like a way to pay an accountant instead of the Inland Revenue!). On a day-to-basis they are indistinguishable from the so-called “permanent staff” they sit beside (often for years), but have less job security (in theory anyway, I have seem many survive rounds of redundancies) and fewer employment rights. This area of “disguised employment” was something that IR35 sought to address.
    The requirements of these people are very different from those of the true entrepreneurs, small businesses and sole-traders that they are often lumped with in the statistics.

  • Eddie Sammon 9th Feb '17 - 1:09pm

    I’m passionate about standing up for the self-employed. Unfortunately many on the left do not seem to be because it involves individual competition. I know generalisations aren’t popular, but that is not to attack the general integrity, mostly selfless, of the left.

    I had a small business and packed it in due to depression and then cash flow problems, involving debts to the bank and the taxman. However I should be starting full time work again very soon and I remain a big fan of small businesses.

    The new tax returns sound like a nightmare. Once a year is enough. Payments are already due twice a year.

  • Lorenzo Cherin 9th Feb '17 - 3:02pm

    Martin

    As a self employed member who has had more famine than feast, I back you and this more than I can say. The new plans , like much of the top down governmental nonsense are an appalling development in precisely the wrong direction. The party needs to make far more noise, Baroness Kramer et al need to be heard on this. The Conservatives, as Tim says, have no claim on being the party of small business, Thatcher was many things good and bad, she did not cut benefits or increase red tape ! It is time to get a bit of Reaganesque, get the government off the backs of the poeople, into our discourse and language .The HMRC are , like all institutions to any Liberal or liberal social democrat, to serve us , not us , them.

    The presumption of innocence , until proven otherwise is a human right. Business people at the smallest micro business or individual self employed level, should be presumed as innocent in not knowing how to , or want to, navigate the nightmare systems government devises !

    Anyone who thinks left is well meaning, mostly, like our terrific friend Eddie, herein, see the American tax systems red tape , only liberal Rebublicans and libertarian oriented seem to care !

  • Martin Roche 9th Feb '17 - 3:21pm

    There are innovative policies that can help the self-employed without taking a great shift to the Right. The motivation is not to deprive others but to help businesses grow stronger so their owners can meet their obligations for the immediate and long term future and perhaps employ more people, plus the state gets its tax, which if can’t get when people go bust.

  • Mark Valladares Mark Valladares 9th Feb '17 - 7:43pm

    It is, perhaps, time to put the other side of the story. Too many self-employed people are so either through a lack of choice – their notional employer effectively devolving responsibility and cost. Many at the bottom end of the income scale in particular keep poor records, claim expenses they aren’t entitled to and get the benefit of an increasingly generous tax regime.

    Eddie, if paying tax twice a year is such a ghastly burden, why aren’t you at the barricades for the rest of us on PAYE, paying tax monthly or even weekly?

    But my greatest irritation is with Martin’s cashflow argument. Firstly, it is not unreasonable to expect the self-employed to make some provision for future tax bills going forward, rather than claim poverty when the HMRC bill falls due. Remember, the self-employed pay their tax and National Insurance in arrears, half ten months into the tax year, the other half four months after it ends. Any top-up payment is made ten months after the year end. Those of us on PAYE aren’t so privileged.

    A well-run business keeps its records up to date, otherwise how can the proprietor know what they have available to spend or invest? It will act as an incentive to many to keep better records, not such a bad thing, I’d suggest.

  • Eddie Sammon 9th Feb '17 - 8:16pm

    Mark, my problem is not with paying taxes four times a year, or even 12, but with the new requirement of five tax returns to be completed per year. Someone on PAYE doesn’t have to complete any.

    I also question the “increasingly generous tax regime”. For April 2016 an additional rate tax payer (as an example) has to pay 20% corporation tax and then 38.1% on the remainder in dividend tax (if they pay themselves via dividend) so the net tax rate is 50.48% whereas for someone PAYE it is only 47% (45% income tax plus 2% NI).

    Corporation tax has to be included because it is what the shareholder has to pay and why dividends have always been taxed at a lower rate than income.

    Regards

  • Eddie Sammon 9th Feb '17 - 8:42pm

    PS, Martin, I’ve just done some research on the new tax returns and I can’t find anything about five returns per year, only four, under quarterly reporting? Apparently the returns will be shorter so take less time.

    I’m not saying you are wrong, I’m just asking for a link and after a quick search I couldn’t find it.

  • @Eddie – I already do 5 tax returns a year: 4 VAT returns and one PAYE…

  • Lorenzo Cherin 9th Feb '17 - 10:28pm

    Martin

    I was not suggesting a move to the right is warranted,but saying the previous centre right were more in tune with liberal views, on some things in economic areas re business practices at the smaller level,anti red tape nonsense, being the main one I like that view on !

    Mark

    Eddie says it, its not about objecting to paying money, it is objecting to completely mindless red tape that serves no purpose. It is not for the nanny state to force bookeeping concerns , by pointless online requirements,it is up to the individual to keep the records. This does not come from the service itself more than likely, as it needs more work from them too, it sounds like a typical know all , know not much , Tory or corporatist , nonsense .

  • There’s a lot of good stuff in the article, and subsequent comments. It’s particularly refreshing that the range of self-employment has been discussed, with the varying pressures that come with it.

    It should go without saying that anything that makes the regulatory “paper-work” more simple should be encouraged, but I am struggling to see what’s so wrong with having to update your tax returns four times a year. I’ve known a few self-employed people get themselves into a right lather as the annual deadline for doing tax returns approaches, and part of the reason is that they’ve got a whole year’s worth to consider, and it was a whole year since the last time they did it. However, if people really are keeping records as they go (and they should), then taking some time out once a quarter shouldn’t be a problem, and might mean that accountants work all year round! (Sorry accountants) As well as spreading the effort of doing the returns, it should spread the work-load in the tax office too. It is a fair point that it shouldn’t be assumed that everyone finds it easy, and instead of lining the pockets of accountants of variable quality, I’d like it if more resources were invested to helping the less form-inclined professions with their returns.

    Andrew makes a good point about pensions, and ensuring there are suitable schemes for the self-employed, and encouraging their take-up is very sensible.

    The problem of some businesses delaying the payment of invoices until the last minute is a concern. It’s always heartbreaking to read reports of a business going bust simply because another business has not paid their bills. I’m not sure the best way of protecting those businesses, but I’m sure we could do better.

  • Richard Warren 14th Feb '17 - 3:50pm

    One way sole traders are getting round the problem of insecurity is by joining together to form co-operatives. This solution is very much in the liberal mould: http://www.uk.coop/about/case-studies/freelancer-co-operatives-paper-rhino

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