IPSE: Almost the size of the public sector, self-employment is too important to be ignored

Posted On: 
25th April 2018

With approximately 4.8 million people – 15 per cent of the UK workforce – the self-employed sector is too important to be pushed to the margins of political debate, says Simon McVicker, Director of Policy of External Affairs, IPSE.

The growth of the sector is predominantly driven by skilled, older freelancers and contractors – often, according to the report, working in ‘finance and business activities’ and education.
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For too long, self-employment has been marginalised: confined to the footnotes and appendices of the political agenda. But for the last 20 years, it has been one of the fastest-growing sectors of the economy. Now it is approaching the size of the public sector, and it can no longer be ignored.

IPSE (the Association of Independent Professionals and the Self-Employed) has commissioned a report – released to coincide with our policy conference today – to bring self-employment to its rightful place at the heart of policy debate in the UK. Written by think tank Demos, it is called ‘Free Radicals: Britain’s self-employed millions urgently need a new deal’.

One of the report’s key findings is essentially what IPSE has been saying for some time: with approximately 4.8 million people – 15 per cent of the UK workforce – the self-employed sector is too important to be pushed to the margins of political debate. As the report comments, “given self-employment’s resilience in a variety of economic circumstances – before, during and after the Financial Crisis – there is little doubt that it represents a structural rather than cyclical transformation.”

‘Free Radicals’ also confirms that, contrary to the prevailing media narrative, this ‘structural transformation’ has not been driven by exploited vulnerable workers being forced into the ‘gig’ or platform economy.

Actually, the growth of the sector is predominantly driven by skilled, older freelancers and contractors – often, according to the report, working in ‘finance and business activities’ and education.

What’s more, far from being exploited, the overwhelming majority of people in the sector are happy with self-employment and actively choose to work for themselves. As the report emphasises, 80 per cent say they are happy with their way of working and choose to stay in self-employment, while 70 per cent say they intend to remain self-employed for the foreseeable future.

Although most people in the self-employed sector are content, however, that’s not to say there aren’t problems. ‘Free Radicals’ found that most self-employed people have a number of pressing anxieties. Near the top of the list was ‘not being financially prepared for retirement’ (net 46 per cent concern). Indeed, as IPSE has highlighted elsewhere, at present only 17 per cent of self-employed people are paying into a pension, and 16 per cent are not saving for later life at all. Self-employed people have good reason to be concerned about what amounts to a looming pensions crisis.

It isn’t just pensions either: the ‘Free Radicals’ report highlights deep concerns among the self-employed about a whole range of issues, including an ineffective and punitive tax system, over-restrictive government legislation and a general lack of support. In short, despite self-employment growing faster than almost any other part of the economy, policymakers have simply failed to keep pace with the rate of change and address the needs of people in this vital sector. That’s why there must be a new deal for the vital component of the workforce.

A ‘new deal’ for the self-employed

Stressing the need for an urgent new offering to support the self-employed, ‘Free Radicals’ includes a range of recommendations to shape what this should look like.

One of the most pressing is the report’s call for a halt to the disastrous changes the government has made to the so-called ‘IR35’ tax law. Perhaps the best example of over-strict government legislation, IR35 was first introduced to stamp out ‘disguised employment’. But in practice it has caused many self-employed people to be unfairly taxed like employees – without any of the benefits.

Then in April 2017, the government tightened the regulation in the public sector, shifting responsibility for determining IR35 status from freelancers themselves to the public sector bodies that engage them. And because of the complexity of the regulation, rather than trying to judge cases individually, many public sector bodies simply declared all their contractors under IR35. The result? A mass exodus from the sector, exacerbating staffing shortages in the NHS and causing major delays to TfL projects and other work right across the public sector. ‘Free Radicals’ rightly argues against the extension of these disastrous changes.

Among the most important of the other recommendations in the report is a new ‘engagers tax’ for businesses using self-employed services. This is a new idea, and is certainly worthy of further investigation. This may be a viable way for the government to address concerns about the discrepancy between employee and self-employed taxes (which led to the Chancellor’s disastrous decision to try and raise National Insurance Contributions for the self-employed in the Spring Budget last year).

The self-employed often pay lower taxes than employees essentially because of the added risk they take on – risk that gives businesses and the economy invaluable added flexibility. Tweaking IR35 to increase tax receipts from the self-employed has been disastrous. IPSE believes an ‘engagers tax’ on businesses could be a fairer way of addressing any perceived tax gap.

Another key recommendation – and something IPSE has been calling for for a long time – is writing a statutory definition of self-employment into law. Because, although the rise in self-employment is certainly not being driven by exploited workers in the platform economy, that’s not to say that worker exploitation isn’t a problem. The fact of the matter is that a small number of unscrupulous companies are using self-employment to deny workers their rights. Clearly defining self-employment in law would not only allow the government to root out this false self-employment; it would also protect the flexibility and freedom of legitimately self-employed people.  

The report also includes several recommendations to address concerns about the lack of support for the self-employed. Perhaps the most significant is the call for far-reaching reform of Universal Credit to make it actually work for self-employed people. One of the key things here would be extending the Minimum Income Floor exemption from one year to three to account for the length of time it often takes freelancers and the self-employed to get their businesses off the ground.

To address the crucial issue of saving for later life, the report recommends exploring several different ways of improving pension uptake among the self-employed. Perhaps the report’s most radical recommendation is extending pension auto-enrolment to the self-employed. This is actually something IPSE doesn’t agree with: after surveying many people across the sector, we’ve found most don’t want such a rigid system.

Much better, in our view, is the report’s recommendation that the government should explore the so called ‘sidecar’ model currently being tested by NEST. This model, allowing people to draw on a ‘rainy day fund’ part of their pension at any time, we believe, would give the self-employed exactly the flexibility they need.

Auto-enrolment or sidecar model – such divergences are part-and-parcel of what we at IPSE have been working to achieve with our policy conference and our report with Demos: bringing the debate about self-employment to its rightful place at the heart of political discourse.

Because whatever policy solutions are needed to support it, one thing is for certain: this vital and burgeoning sector is here to stay.  

 

Read the full report here.