A big talking point at the Labour conference this year was the growth in people working for themselves or in insecure employment, and what this means for the tax take and workers’ rights
The CIOT once again partnered with the Institute for Fiscal Studies (IFS) to run conference events this year and contributed to the debate in this topical area. Vanessa Houlder, tax correspondent at the Financial Times, chaired the discussion on ‘The Changing World of Work – How should government respond to the growth of self-employment and the gig economy?’, with speakers John Cullinane, Tax Policy Director at CIOT, Helen Miller, Associate Director of IFS, Peter Dowd, Shadow Chief Secretary to the Treasury and Kate Bell, Head of the Economic and Social Affairs Department at TUC. An audio recording of the event is available below.
In his speech, Peter Dowd said the event addressed ‘one of the main challenges of our time’. Too often we assume that the practices of new companies are innovative because they are digital, but short-term, fragmented work with low levels of health and safety and workers’ rights are nothing new – ‘we have seen this before’ especially pre-World War One, he argued.
The shadow minister explained Labour’s plan for a dedicated commission to modernise rules around employee status and the idea that making ‘employee’ the default legal status of a worker would help to stamp out artificial self-employment arrangements. Whereas the Conservatives praise the ‘gig economy’ for proving flexibility in the Labour market, Labour is primarily concerned about people being ‘driven’ into ‘low quality jobs’. Dowd said that he had heard ‘story after story’ of people being driven into self-employment by employers.
A systematic method is needed to address the growth in self-employment and gig economy work, said Dowd, rather than just focusing on differential rates of national insurance contributions (NICs). He claimed that the Government’s March 2017 NICs announcement was not a serious attempt to tackle this issue. He argued that there is too much ambiguity in status and rights of individuals across employment statuses.
Dowd also offered his support during the sessions for the CIOT/IFS/Institute for Government Better Budgets report, specifically on the need for evidence sessions during the passage of the Finance Bill through Parliament and the need for more time in general for greater scrutiny of Finance Bills. Among his other comments, he said tax reliefs are not reviewed enough by the Treasury.
John Cullinane gave a presentation which showed how employers have an incentive to save on NICs by taking people off the payroll and into self-employment. If it were not for Brexit, this would probably be top of HMRC’s agenda given the risk to the tax take of the movement to self-employment, he said. He spoke about two potential options for the Government: level the playing field by deeming everything to be employment or keep different taxes/contributions and balance up the rates. He also flew a kite with a reference to ending NICs and replacing it with a business social contribution, as suggested by Colin Ben-Nathan, Chair of the CIOT’s employment taxes sub-committee. Under this proposal, rather than a levy based purely on employees’ wages (NICs), the charge would be applied to day-to-day operating costs as a whole – meaning that a business should be completely indifferent – from a tax perspective at least - as to whether it engages employees, the self-employed, automates or offshores. Of course, the rate would then drop from 13.8 per cent because the base would be broader. There is a need for clearer legal definitions before any solution is rubber stamped by the Government, he added.
The IFS’ Helen Miller told how someone earning £40,000 a year would contribute about £4,000 less to the Exchequer by working self-employed rather than as an employee. The issue is coming to the fore now because the impact of employment changes is being reflected in OBR forecasts of the tax take. She argued that the self-employed get very similar state benefits to the employed. Employee rights are a transfer from employers to their employees and not a benefit given to employees by the Government, she added. Miller believes that the difference in risks associated with someone running their own business do not in themselves justify different tax treatment. There are better ways to help low incomes groups, such as changes to benefits, especially Universal Credit, Miller suggested.
The TUC’s Kate Bell said there is a ‘reasonably strong’ correlation between lower productivity growth and higher incidences of ‘insecure employment’. Bell is a supporter of reversing the burden of proof for determining who is not an employee. In this she shares the view of the CIOT’s Low Incomes Tax Reform Group, which has said an adjustment to the burden of proof in such cases such as recommended by Matthew Taylor’s Review, could ultimately see higher tax receipts and mean that workers taken on by those companies have a secondary contributor to help secure them the concomitant welfare rights such as maternity pay and sick pay. The TUC would like to see an end to the Swedish derogation for agency workers. Agency workers are entitled to get the same basic pay and conditions as comparable employees after a 12-week qualifying period but the Swedish derogation provides an exemption from this as far as pay is concerned.
Dowd addresses the audience at The Grand, Brighton, with watching Cullinane, (right), Houlder (middle), Miller (centre left) and Bell (left)
The fringe event attracted about 50 people, which included members of the CIOT, representatives of organisations and companies, Labour party delegates and journalists.
During a question and answer session, Cullinane opined that the VAT threshold of £83,000 is quite high compared to other countries, which limits who pays taxes. The panel also discussed how NICs could be bought closer together, with the problem for the Government being whether to decrease NICs on employers and increase it on self-employed or vice-versa. We also learned that the IFS is working on a report on low income work for the Government.
An audio recording of the event is available below: