Govt u-turns on tax increase for self-employed people

15 March 2017 The government has u-turned on its Budget proposal to increase National Insurance Contributions for self-employed people.

15 Mar 2017| News

15 March 2017

The government has u-turned on its Budget proposal to increase National Insurance Contributions for self-employed people.

In a letter to MPs today, Chancellor Phillip Hammond claimed the climb down had been decided out of his commitment to the Conservative Party manifesto, including “tax-lock” promises.

He said: “In light-of the debate over the last few days it is clear that compliance with the “legislative” test of the Manifesto commitment is not adequate. It is very important both to me and to the Prime Minister that we are compliant not just with the letter, but also the spirit, of the commitments that were made. In light of what has emerged as a clear view among colleagues and a significant section of the public, I have decided not to proceed with the Class 4 NIC measures set out in the Budget. There will be no increases in NICs rates in this Parliament. We will continue with the abolition of Class 2 NICs from April 2018.”

Much of the criticism of Hammond’s proposals has actually centred around who is impacted by the increase in tax on self-employed people, particularly as a significant number of the jobs added to the economy in recent years have been classified as “self-employed” and there is evidence to suggest many of these people actually qualify as “workers”.

In 2015, Citizen’s Advice Bureau estimated that around half a million “self employed” people in the UK were misclassified as such and, with 15% of the workforce now classified as “self employed”, it is thought this number as risen significantly.

Hammond mentioned in his letter to MPs that a consultation into the tax deficit arising from an increase in self employed will be conducted over the summer, and that the government will await the report from the Taylor Review into the gig economy and its impact on workers’ rights.

Taylor’s preliminary proposals have been that workers need a stronger voice in the workplace to protect them from exploitation, and greater awareness of their rights – for instance, being able to check that they are correctly classified as “self employed” – but the Institute of Employment Rights highlights that individual workers being asked to protect their own rights without significant reform of employment law is unlikely to remedy the issue. For instance, a worker on a zero-hours contract is unlikely to “call out” their employer on a breach of their rights because they may find they no longer receive hours as a result, and have effectively been dismissed. Should that worker then decide to take the case to tribunal, it would cost them up to £1,250. It is also unfair that the onus should be put on “self employed” workers to ensure their employment status is accurate, rather than on the employer, who is far more likely to have the resources and legal support available to ensure they are correctly following the law.

Individual workers, even with greater awareness of their rights, are unlikely to be able to protect themselves alone. Rather, workers must be able to collectively organise in trade unions in order to show a united front against unfair practice at work and to negotiate for fair pay and conditions – something an individual employee or worker does not have the leverage to achieve.

With the Tory’s Trade Union Act 2016, which came into effect earlier this month, trade unions have lost even more power. No matter what the Taylor review says, without government support for unions and collective organising, it will be impossible to tackle exploitative practices at work – including bogus “self employment”.