Rachel Reeves: May's Budget leaves self-employed in firing line for National Insurance tax grab
Conservative manifesto cleared the way for a major tax grab from the small firms and the self-employed who are the backbone of the UK economy, says Rachel Reeves.
Theresa May promised a few days ago that she would deliver the “greatest extension of rights and protection for employees by any Conservative government in history”.
She claimed the Tories were both the party of business and workers, pledging more protection for those employed in the “gig” economy.
But now we have finally seen the Conservative manifesto, it reveals a very different story.
The document contained precious little for the self-employed and the low paid. In fact, it cleared the way for a major tax grab from the small firms and self-employed workers who are the backbone of our economy.
While the Prime Minister is dramatically cutting corporation tax, which predominantly helps the biggest businesses, she is still failing to offer any real support to the self-employed.
The Government performed an embarrassing U-turn over its shambolic £2bn tax grab in the Budget that would have forced around 2.5 million workers to pay up to £700 more annually by 2019 in National Insurance contributions (NICs).
The dumping of the ill-considered and unfair rise in NICs came after it was pointed it out that such a move would be a breach of a key manifesto pledge. Significantly, the Tories’ 2017 manifesto this week made no such promise to rule out tax rises.
It now seems inevitable that the Tories will increase NICs for the self-employed. A 2% rise in NICs would cost someone on £20,000 each month £20 per month. For someone on £30,000 per month that figure would be £36.
All the self-employed get from the Tories is a vague line in the manifesto claiming that those in the gig economy will be “properly protected”, but with no detail whatsoever.
The Tories seem to be entirely unprepared to help the self-employed and are placing an unfair burden on the people who take risks, create jobs and are often get small financial reward for the NICs and other taxes they pay to work for themselves.
The list of potential benefits for regular employees is long and includes protection against unfair dismissal, paid parental leave, sick pay, the right to a minimum wage, working time protections, and paid holiday entitlement. The self-employed have no such rights.
In our 2017 manifesto, Labour committed to extending rights enjoyed by employees to the self-employed, including shared parental pay.
Low wages are endemic amongst the self-employed. Typical earnings in 2014-15 were around £12,000 for a self-employed worker compared to more than £20,000 for employees.
Income inequality is even higher among the self-employed than among employees. The richest 5% of the self-employed make around one third of self-employed earnings. This figure is about twice as high as the share of the top 5% of employees.
The lowest earning half of the self-employed get only 14% of total earnings for the self-employed. That figure is 24% for the lowest earning half of employees.
So it is even more unfair that the self-employed are further penalised by the Conservatives’ Universal Credit (UC), which is being rolled out to families across the country.
UC assumes the self-employed will be earning the National Minimum Wage a year into their trading operations. Any benefits they receive are set accordingly, with many losing out at a time when the self-employed have endured lower income growth than employees.
The Tory manifesto makes no changes to UC, suggesting that they have no intention of doing anything to address this gap.
With the number of self-employed set to reach the same number as people employed in the public sector by 2020-21, I want to see genuine self-employment flourish and for people to have rewarding jobs that ensure them a good income.
Of course, we need to crack down on bogus self-employment and exploitative contracts by strengthening employment rights, as Labour commits to in our manifesto.
But, if the self-employed are to be taxed more, they have to get something in return.
Under the Tories it will be more of the same, with tax cuts for the rich and higher National Insurance contributions for the self-employed.
One thing is crystal clear from what we have seen from the Tories and their manifesto: Only Labour can and will offer proper protection and genuine help for the self-employed.
Rachel Reeves is the Labour candidate for Leeds West
IPSE's Andy Chamberlain responded to Rachel Reeve's article, saying: "The number of self-employed people in the UK has increased by 47% since 2001. They now represent 15% of the labour force. The old view that self-employment was marginal and benign has been swept aside. The self-employed are here to stay and they are a major asset." Read the full response here.