Follow the money: How do the tax and social security proposals in the Taylor Review measure up?
The rise of insecure work has had real consequences for both personal budgets and the national exchequer.
The lower earnings and lower tax paid by the self-employed and those on zero hours contracts means the rise in insecure work has come with a £5bn price tag for the exchequer.
But the cost of insecure work to individuals can also be high. This is due to both lower pay and antiquated rules about entitlement to certain benefits. Sick pay, for example, is only available to those earning over £113 a week. The TUC estimates that around 500,000 people currently in insecure work are deemed too poor to qualify.
It’s therefore welcome that Taylor has recognised the need for tax and social security reform. Both are needed to tackle the rise of insecure work. But the devil will be in the detail of the proposals – and there’s still a lot to work out.
Taking tax first: Taylor rightly points to the difference in the amount of tax paid by employers as a key driver of false self-employment, and a significant drain on the exchequer. The Review says:
It is also important to recognise that the difference in [National Insurance] NI contributions paid by the self-employed and employed individual is relatively small in comparison with the fact that employers pay 13.8% NI contributions on the labour of employees and workers (earning above the NI secondary threshold), whilst the engagers of self-employed labour do not make any NI contributions on behalf of those they hire. The Review believes that, over time, there is a case for moving to a more equal tax treatment of self-employment: it follows that there is a case for companies and others who engage self-employed labour to contribute more to the overall NI payments made by the self-employed, in the same way as they do for employees.
The Review clearly recommends that the tax rates for individuals should be equalised, as the Chancellor originally intended to do in this year’s budget. However, the timescale for equalising employer rates is much vaguer.
It’s hard to see how hitting self-employed individuals can be the right priority, especially when equalising the rates of employer NI would bring a bigger exchequer return. Of course, there’ll be debates about how best to level the employer playing field. The Social Market Foundation recently suggested that the government introduce a ‘hirers national insurance contribution’ for those employing the self-employed. This would start at 2 per cent per year, and reach parity with employer NICs by 2025.
A Chancellor currently looking for new ways to fund public services could look for a worse place to start in this year’s (Autumn) budget.
What about the other side of the fiscal envelope – the benefits that those in insecure work receive?
One huge positive is that the Review recognises that the current system where you can be too poor to qualify for sick pay isn’t fair. Workers who spoke to us about insecure work told us about their fears that they would have no entitlement to sick pay. The Review says:
Government should reform Statutory Sick Pay so that it is explicitly a basic employment right, comparable to the National Minimum Wage, for which all workers are eligible regardless of income from day 1.
If the government wants to move swiftly to show that it takes these concerns seriously, paying sick pay to all workers from day one is a good place to start.
The Review also suggests that sick pay could be calculated differently, and accrued on the basis of length of service. This would be alongside a new right to return to the same job for those who experience a prolonged period of ill-health. Those are ideas that are worthy of consultation. However, they shouldn’t be used to kick the basic principle of ensuring that everyone has the right to sick pay into the long grass.
Expanding sick pay should be the priority for providing those in precarious work the greater financial security they deserve. But there’s a few other social security ideas scattered throughout the Review that point to quick wins for a government that wants to show its delivering change.
First, equalising parental benefits. One particularly anachronistic feature of the current set of social security rights is the lack of any dedicated support for new fathers or adoptive parents who do not qualify for Statutory Paternity Pay. This can either be because they are self-employed or because they earn too little.
The TUC estimates that one in five new fathers missed out last year.
Philip Hammond reportedly dropped a planned consultation on equalising parental benefits on the day that the Taylor Review was announced. That doesn’t bode well for the chances of getting any more complex changes past the Treasury. But it doesn’t mean it’s the wrong policy – or not one of the easiest for government to implement swiftly.
The Review contains sensible suggestions to enable the self-employed to pay into a pension through their tax return (as the TUC has argued). A review of auto-enrolment by the Department of Work and Pensions presents an obvious opportunity to take this forward.
Finally, the report is silent on the how the planned cuts to Universal Credit will affect those in insecure work. This remains the government’s ‘flagship’ welfare reform. The government expects to save £1.5bn by 2021/22 by introducing tougher rules for the self-employed claiming in-work support. These new rules will arrive alongside cuts in the level of support to all families. All of this will hit those on low incomes the hardest.
Unless the government moves swiftly on the positive proposals in the Taylor report to tackle insecure work, its these cuts that are likely to be the overriding impression the self-employed and those on zero-hours contracts take away of the government’s attitude towards them.
Read more on the Taylor Review: The Taylor Review – should the Low Pay Commission be given more to do?