Matthew Taylor calls for more consistency in tax treatment of the self-employed

7 Apr 2017

The Work and Pensions Committee’s inquiry into self-employment and the ‘gig economy’ continued with a session with Matthew Taylor. Taylor is Chief Executive of the of the RSA and leader of the Department of Business, Energy and Industrial Strategy’s independent review on modern employment practices.

Taylor is looking at the exploitation of the labour market, the rules and regulations pertaining to employment status and why the taxing of employment is complex. “If it has to be a complex system, can we at least make it one that is easier for ordinary folk to use?” he said. He is also looking at whether there are incentives in our system of regulation and tax which are driving particular outcomes in the labour market.

Conservative MP James Cartlidge said the Committee’s inquiry risks generalising about some hugely variable employment types and patterns.  Cartlidge suggested that there needs to be a new category of employment (currently ‘employed’, ‘self-employed’ and ‘worker’), notwithstanding any potential complexity, for people in the gig economy. Taylor agreed that it is ‘really unhelpful’ to have ‘worker’ meaning something very specific… and also being the word that people use generically to describe anyone who is working’ and suggested ‘dependent contractor’ as a solution. He added that control of the working relationship should the critical factor and that is more important than substitution.

Taylor told CTA and Tory MP Craig Mackinlay that he has not seen rigorous evidence that would suggest a direct correlation between the level of employment regulation and the pattern of employment that results from that, in Europe or beyond. Taylor told Tory Royston Smith said we should be a little bit careful about thinking that the gig economy is so radically different to what has come before. “What is new are the opportunities provided by technology to grow businesses very, very quickly.”

It feels to Tory Heidi Allen that the gig economy is growing and the state is going to ‘pick up the pieces’. Taylor said that the tax system and employment regulation needs to adapt, although he said it is ‘unfair’ to entrepreneurs to change the rules halfway along the line. He said: “The taxing of labour needs to be more consistent across different employment types. That is a big and complex thing to do, but I think it is the right thing to do. A more consistent way of taxing labour and better entitlements and support for self-employed people do go together, and… need[s] to accomplish over the next few years.” He said there needs to be short-term and medium term changes made, such as him supporting Philip Hammond’s wish to increase NICs on self-employed. He said: “self-employed people get I think over 99 per cent of public spending entitlements available to employed people or available to self-employed people, and most welfare entitlements as well”.

Tory Richard Graham was told by Taylor that the review will not go into the debate about NICs, especially whether employers could pay some form of employment tax, payroll taxes as an alternative to NICs. He said: “[What] I want is a situation where businesses choose the business model they have because it is productive, it is innovative and it provides great service to customers, not because it gives them tax advantages or has enabled them to circumvent employment rules.” He said that his June review will give a broad sense of direction on employment and the welfare system, and lead to an employment tax system which is resilient in the face of what is likely to be a very radical change in the labour market.

Taylor told Cartlidge that tax allowances that people get for investing in their equipment, the ways in which we treat the profits that people generate are some of the variety of ways the Government can encourage entrepreneurship and encourage investments in businesses. He is unsure that a differential tax system is the most effective way for us to encourage self-employment entrepreneurship.

Taylor added: “I do not think that is about saying that we simply would pass on employer’s national insurance to me, as the person paying for the gardener for three hours— that is, they are self-employed and I now have to pay a labour tax on them. That is an obvious way in which you might do it overnight but it would be difficult to do.”

The full session from March 29 can read here.

By Hamant Verma