Now read Hamish McCrae on why self-employment is the future of work
As the ranks of the self-employed have swelled, so too has political interest in them. Jeremy Corbyn’s speech to Labour conference was the latest to identify support for the UK’s 4.5m self-employed workers as potentially fertile ground. "What are the Tories doing to help the self-employed, the entrepreneurs they claim to represent?" he asked in his speech to conference yesterday, saying he wanted to consider extending statutory maternity and paternity pay to self-employed people, and launching a review into what more Labour can do to support this group.
But will his description of the challenges they face resonate, and which policies should politicians aiming to appeal to the self-employing be weighing up?
The first point to acknowledge is that the self-employed are a diverse group. Portraying them all as victims, instead of recognising how attractive the independence and flexibility that comes with being your own boss can be, is counter-productive. A survey for the Resolution Foundation last year backed that up, with over four-fifths of the self-employed saying they preferred working for themselves.
But there are downsides. The typical self-employed person earns less than the typical employee, and their earnings have fallen much further since 2008. That lower income today may have implications further down the road. Self-employed people are less likely to have a pension; the number of self-employed workers actively contributing has halved in the past decade. They’ve also missed out on one of the big pension innovations of recent years—the auto-enrolment of millions into workplace pensions—although they will be among the main beneficiaries of the new Single Tier Pension.
Part of this undersaving is down to low incomes: most self-employed people who don’t contribute to a pension say it’s because they can’t afford to. But it’s also vital that there’s a real incentive for the self-employed to save for their retirement. Whether that’s contribution-matching from government, more favourable tax treatment or just making it easier to pay in, there’s scope to make progress on pension coverage for the self-employed.
The self-employed face something of a double whammy when it comes to in-work support in the next few years. Just like employees, they’ll lose out from cuts to tax credits announced in George Osborne's last budget. And while one of the selling points of Universal Credit is the added simplicity it offers employees—six benefits rolled into one—for the self-employed the admin burden is set to increase. They’ll be expected to provide monthly rather than annual updates on their income and will face a "minimum income floor," meaning that their UC payment will be capped in months when they earn less than a full-time minimum wage worker.
These may sound like minor bureaucratic tweaks but some have complained that getting a business up and running and staying afloat will become harder. Those with lumpier income patterns will find themselves worse off than an employee with the same annual earnings. A more pragmatic approach needs to be taken, aligning reporting periods and the minimum income floor with the annual tax system.
Corbyn said that Labour will consider extending entitlement to Statutory Sick Pay or Maternity Pay to the self-employed. These are rights currently only granted to employees on the basis of having an employer. While treating all workers (and their kids) equally makes sense, it would mean the state stepping into the role of employer, with responsibility for determining when sick pay should be paid and what a person’s average weekly earnings are for the purposes of maternity pay. These aren’t insurmountable challenges, but they’ll take some time and will cost money. Designing a system which minimises state intrusion as well as the likelihood of gaming the system will not be straightforward.
And although National Insurance contributions don’t determine the self-employed’s eligibility for these payments, it’s worth bearing in mind that the self-employed pay less NI than employees. Would the self-employed be willing to give up this tax break in return for more protections?
Given the sense among many self-employed people that they are often an afterthought for policy-makers, it’s crucial that politicians reach out to the self-employed and the bodies that represent them. It would also be sensible to consult with organisations and individuals that interact with the self-employed on a regular basis, both those linked to government (HMRC, job centres) and those outside it (banks, accountants). Whatever happens, the self-employed are likely to stay firmly on political parties’ radars for some time to come but the more the self-employed themselves—in all their diversity—are involved in that process, the better the outcomes are likely to be.
