Scotland showing the way with fair work agenda, Minister tells SNP conference

He was speaking at a fringe meeting at the SNP’s annual conference, which took place this year in Glasgow.

CIOT Scottish Technical Committee chair Moira Kelly oversaw proceedings as Tom Pope of the IFS, Anne Fairpo of the CIOT and Hepburn, the Scottish Government’s minister for Employability and Training, debated ‘The Changing World of Work – How should government respond to the growth of self-employment and the gig economy?’

Opening the evening’s proceedings, Tom Pope noted that technology was driving changing trends in employment, with implications for the tax base.  Since 2008, 40% of workforce growth had come from the rise in self-employment and owner-managers.

On a salary of £40,000 per year, an employee could expect to be taxed to the tune of just over £12,000 while someone doing the same job on a self-employed or owner-manager basis would face a liability of just £8,713 and £7,358 respectively.

This could result in a loss to the Exchequer of as much as £6 billion.

Such figures very neatly highlighted one of the key drivers of the trend towards self-employment as a means of reducing an individual’s tax liabilities.

Pope suggested that using the tax system to treat people differently on the basis of their employment status was unjustified as it did not correlate with lower access to state benefits or weakened employee rights, and was poorly targeted at risk taking.

The UK Government’s (ultimately doomed) attempt to close the gap by increasing Class 4 National Insurance Contributions (NICs) would have achieved very little.  He suggested that while it may have been a well-meaning attempt to close the gap, it would have merely “scratched the surface”.

While the rise in self-employment was described as a UK-wide phenomenon – one the Taylor Review had described as being neither justifiable or sustainable – Pope said that Scotland was uniquely faced with the problem that it had control only over part of the income tax regime.

With the Scottish Government having control only over income tax raised from employment, receipts from unearned income – such as dividends – are paid straight to the UK Government, with potential impacts on devolved tax receipts.

How could the present situation be remedied?  In conclusion, Pope argued that the current system was inefficient and unfair.  At a minimum, action needed to be taken to aligning the tax treatment of employees/self-employed/owner-managers.  While this was a challenge facing the whole of the UK, for Scotland, the devolution of only part-control of income tax could, over time, prove particularly troublesome.

In her remarks, Anne Fairpo, chair of the CIOT’s Low Incomes Tax Reform Group, painted a similar picture to Pope of a system that disincentivised “on-payroll” employment. The current system created incentives for employers to save money on NICs and circumvent employment rights, while providing employees with the opportunity to save on paying tax through incorporation, she said.

Different arguments had been put forward for the different tax treatment of employers, the self-employed and owner-managers, each of which had to be considered on their merits and de-merits.   Ms Fairpo said that the CIOT believed that these needed to be a matter of public debate and scrutiny in order to achieve consensus on the best way forward.

In a nod to the Better Budgets report, produced by CIOT and IFS with the Institute for Government, she said such engagement would minimise the chances of surprise “rabbit from the hat” Budget measures that can weaken parliamentary scrutiny and often result in hastily arranged government retreats and U-turns in the face of public opinion.

She suggest that the time had come for “blue-sky thinking” and outlined a range of alternatives to the current situation.

Public debate, Ms Fairpo concluded, was essential if the country was to solve this problem.

As Minister for Employability and Training in the Scottish Government, Jamie Hepburn MSP has been responsible for taking forward the Scottish Government’s fair work agenda.

Mr Hepburn said that while he welcomed the findings of the Taylor Review, he was aware that many within his own party and beyond had expressed frustration that the reforms proposed did not go far enough.

The UK Government – he suggested – had not demonstrated a willingness to reform the tax base in response to the growth of the gig economy.

He said that there were significant reasons to be concerned by the growth in the gig economy and the rise in zero hours contracts.

While he was pragmatic enough to acknowledge that some employees and most consumers had welcomed the benefits and flexibility of these employment arrangements, it had left many at a comparative disadvantage.

Mr Hepburn noted that nothing was inherently wrong with self-employment (which had been the normal way of doing business for many). However, the global recession had provided opportunities for some companies to move away from the model of retaining fully contracted employees in favour of hiring people on a temporary, zero-hours contract basis or self-employed basis, thereby reducing liabilities for National Insurance, sickness and other benefits.

The minister said that zero-hours contracts were less prevalent in Scotland than they were in the rest of the UK and that some employees – such as supply teachers – benefitted from their flexibility.

Mr Hepburn said that the Scottish Government’s fair work agenda had been a response to the challenges of the gig economy.  Initiatives such as the Scottish Business Pledge, Scottish Living Wage and the establishment of a Fair Work Convention were all moves designed to show that Scotland was committed to developing a model of best practice.

He said that there was a need to engage employers and sell them on the benefits of the fair work agenda as a means of investing and developing the workforce.

On tax issues, the Minister said that it was in Scotland’s interests to see the tax base increase, but that without full devolution of tax powers, the government would be constrained in its actions.

A number of audience members posed questions and made contributions. One highlighted the problem of people being forced to go self-employed in order to get contracts – they will lose work if they refuse to do so. A questioner from IPSE called for a clearer definition of self-employment. Anne Fairpo agreed and said consistency in law would help. Another questioner was surprised no one had mentioned the role bitcoin and other cryptocurrencies, and the block chain more generally, might pay in this area.

By Chris Young