From the TUC

Making self-employed lives liveable

31 Mar 2015, by Guest in Labour market

Last week the RSA published a new report looking at the living standards of the self-employed.

Why did we undertake this study? Simple: Because the self-employed community is booming but government, business and wider society have yet to catch up.

In recent years, we’ve seen plenty of initiatives designed to help the small business community. These include deregulation drives, a corporation tax cut and several schemes to improve the flow of finance.

Take a step back, however, and you realise that most of these efforts are aimed at supporting the business as an entity in itself, rather than the individual that sits behind the business. Put another way, we’ve focused on making businesses profitable but overlooked how to make self-employed lives liveable.

By this I mean we haven’t paid enough attention to big issues like earnings, pensions, mortgages and welfare, to name just a few. This is surprising since we know the self-employed are one of the most vulnerable groups in the labour market. They have no recourse to Statutory Sick Pay should they fall ill, nor Statutory Maternity Pay should they become pregnant.

What’s more, many of the self-employed may be storing up trouble for the future. Our analysis of government data reveals that only a third of the self-employed are contributing to a private pension, compared with half of all employees. They’re also less likely to engage in personal development. Just 20 per cent of the self-employed took part in training within the past year.

RSA1

We therefore call upon government to extend more protections to the self-employed, such as Statutory Maternity Pay and the new Fit for Work service. However, where we depart from the chorus of other voices on this topic is in our recognition that the self-employed may need to contribute more in taxes to finance this move.

What does this mean in practice?

Our proposal would see the self-employed as a whole pay more in National Insurance, but with the greatest burden placed on the highest earners. In practice, this means three things:

  • Abolishing Class 2 NICs, which are currently levied at a flat rate of £146 a year (and are therefore regressive)
  • Increasing the rate of Class 2 NICs from 9 percent to 13 percent of earnings above the NICs threshold
  • Raising the Class 4 NICs threshold to £10,600 (the basic rate Income Tax threshold)

As well as raising an additional £280m for the exchequer (not a huge amount but a start), our proposal would leave more money in the pockets of 38 per cent of self-employed workers with earnings between £5,965 and £20,000 per year. A self-employed hairdresser with an annual income of £11,000, for example, would be £359 better off under our reform, while a self-employed builder on £15,000 would take home an extra £199 a year.

We are under no illusion that a hike in taxes would be widely supported. Not least when all the main political parties are doing their best to avoid any mention of the T-word. But the reality is that the living standards of the self-employed will only ever be enhanced with an overhaul of the tax and welfare settlement. For the greater good, sometimes tax does have to be taxing.