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Taylor-made Budget - The Chancellor must consider the self-employed

4 min read

Ahead of the Budget, Conservative MP Bob Blackman urges the Chancellor to take note of the Taylor Review recommendations on how best to support the self-employed. 

If the adage that there is no reward in life without risk is held true, it should also be the case that risk isn’t taken without the prospect of reward. In March, the Guardian reported that 45% of the growth in jobs in Britain’s economy since 2008 were through self-employment, and this demonstrates the importance of ensuring that those who do take the not inconsiderable risk of becoming self-employed have incentive to do so, in turn stimulating the growth of small businesses.

I was one of the many Conservative MPs who raised concerns before the 2016 Budget statement about the touted prospect of higher taxes for the self-employed. Beyond my natural Conservative inclination towards a low tax economy, I had concerns about the lack of consultation and impact analysis preceding any announcements that might have been made, not to mention the small matter of the policy going directly against our 2015 manifesto commitments not to impose any tax rises.

Since then, Matthew Taylor, the Chief Executive of the Royal Society of the Arts, has released his paper on ‘Employment Practices in the Modern Economy’, which recommends a “more consistent” approach to employment forms, alongside measures towards “improving the rights and entitlements of self-employed people”. He also recommends a better distinction made between self-employed people

The first point can either support an argument for lowering tax contributions for the employed in line with the self-employed, 12% down to 9%, or raising National Insurance Contributions for the self-employed towards the level of people in traditional employment. I have a feeling we can guess which option will be more attractive to the Chancellor. Given that NICs for the self-employed will rise to 10% in April 2018, and then 11% in April 2019, the ball is already in motion on this.

We need both those paying into the system via PAYE and we need people taking a more entrepreneurial approach to their employment, since they are the ones who create the businesses which can take on more workers who will be enrolled in PAYE. Trying to argue that compensating the self-employed for a higher tax burden with new rights and entitlements is a false economy; unfortunately, such measures do have the potential to restrict or even strangle this vital innovation. Risk is necessary and many do fail to find success when making that leap, but the incentive is key.

Fundamentally, can this desired ‘consistency’, aka ‘tax increase’, be traded for rights and entitlements without damaging incentives and, more seriously, ending any prospect of profitability at the crucial early stages of a small business? I think answer is somewhere in the region of ‘possibly’, which means a lot more detail is needed so we can be confident that jobs growth will not suffer as a result.

In addition, it is apparent that many small businesses are operating at just below the VAT registration thresholds and even turning away business or halting growth due to the increase in bureaucracy that comes with registration. It is vital that we do not stifle the growth of small businesses but act to encourage and promote such growth. This will need creative thinking by the Treasury.

Another recommendation in the Taylor report is to unblur the lines between genuinely self-employed people and those who are being labelled ‘self-employed’ while working for a company because they work at arm’s length, proposing a ‘Dependent Contractor’ status. Measures such as this seem more sensible when it comes to protecting workers’ rights and closing tax loopholes than blanket tax rises. I would hope that Philip Hammond is taking note of all the suggestions made, not just those justifying a straightforward tax grab, in the run up to his 2017 Budget.

Bob Blackman is the Conservative Member of Parliament for Harrow East

IPSE, the Association of Independent Professionals and the Self-Employed, urge the Chancellor to stop a ‘disastrous’ policy decision that will ‘unfairly punish’ one of the most productive sectors of our workforce.​ Read their full comments here.

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