The Importance of the Self-Employed
We’ve already taken a broader look at what might lie ahead for contractors after Thursday’s General Election. But what about the vote itself? With the polls opening nationwide tomorrow join us as we breakdown the manifestos of each major party (Church of the Militant Elvis Party, this doesn’t include you.)
Before we begin it’s worth noting that the self-employed are likely to have more clout in certain areas of the UK. IPSE recently put together their election breakdown, using constituency data and ONS population statistics to work out where the voice of contractors and freelancers will matter the most.
Taking constituencies with a higher than average (15%) number of self-employed residents and cross-checking that against those constituencies with the smallest majorities, IPSE found that there were certain swing seats where the voice of contractors and freelancers could have a significant impact (with the split between Conservative and Labour being quite even.)
Why is that important? Evidence from the 2015 General Election shows that the self-employed really do have power. They are likely to be more engaged and policy-sensitive than a number of other demographics given that their deep financial and personal investment in their businesses means they feel the effect of policies more sharply than others.
As Lorence Nye notes: “In 2015, Ed Miliband made a direct appeal to the self-employed, saying that he would give them increased employment benefits, such as maternity pay. And despite losing overall, Labour won a number of seats from the Conservatives in London constituencies with high self-employment, like Ealing, Brentford and Ilford. It’s very possible that Miliband’s direct appeal to the self-employed was a significant factor in this.”
All major parties, it seems, would be remiss to disregard their influence. Let’s breakdown the proposals from each.
Given the rumours circulating around the forthcoming Taylor Report, and its likely clampdown on the self-employed, some might think that the claim found in the manifesto that the Conservatives “understand that small businesses are the wellspring of growth” is little more than a hollow soundbite. There are, however, a number of potential benefits that would serve contractors and freelancers well.
Theresa May has gone on record noting that workers in the gig economy require more protection. As the Tory manifesto notes: “A new Conservative government will act to ensure that the interests of employees on traditional contracts, the self-employed and those people working in the ‘gig’ economy are all properly protected.”
For any contractor trading through their own limited company the rate of corporation tax is important. That rate is explicitly referred to in the manifesto: “Corporation Tax is due to fall to 17% by 2020 – the lowest rate of any developed economy – and we will stick to that plan, because it will help to bring huge investment and many thousands of jobs to the UK.”
What else? The manifesto not only promises to “simplify the tax system” for the self-employed, but also promises to lend a helping hand to innovators and start-ups through the encouragement of early stage investment and further growth incentives. There is also a promise that 33% of central government purchasing would come from SMEs by the end of the next parliament.
Late payment has long been an issue for those working for themselves. Pleasingly, the Conservatives have pledged to make sure that any companies supplying contractors for government contracts (and their work with others) abide by the Prompt Payment Code. Those who don’t comply would be stripped of the ability to bid for government contracts.
Finally, much has been made of the growth of the UK tech and digital sectors in recent years. Noting that, the Tories state that they will “help digital businesses to scale up and grow” and will ensure that both consumers and businesses have access to digital infrastructure.
The Labour manifesto, much like their election campaign in general, is well meaning but rather muddled. Alongside a proposal to raise corporation tax, it also promises to clamp down on what it sees as “bogus” self-employment:
“Self-employment can bring many benefits, freedoms and flexibilities to people – and is a vital and often entrepreneurial sector of our economy. But there is also mounting evidence that workers are being forced into self-employment by unscrupulous employers to avoid costs and their duties to workers.”
What would that clampdown entail? Alongside banning umbrella companies the proposals include:
- Shifting the burden of proof, so that the law assumes a worker is an employee unless the employer can prove otherwise.
- Imposing punitive fines on employers not meeting their responsibilities, helping to deter others from doing the same.
- Involving trade unions in enforcement, e.g. by giving them a seat on the executive board of the new Ministry of Labour.
- Giving the Ministry of Labour the resources to enforce all workers’ rights.
- Giving employment agencies and end-users joint responsibility for ensuring that the rights of agency workers are enforced.
- Rolling out sectoral collective bargaining and strengthening trade union rights.
- Setting up a dedicated commission to modernise the law around employment status.
Not all of their suggestions show such a misguided view of contracting, however. Although the corporation tax rate would be increased to 26% by 2020-21 Labour do plan to reintroduce the ‘small profits rate’ for small businesses (applicable to companies with an annual profit below £300k, and rising to 21% by 2020-21.)
They also say they would mandate the new National Investment Bank (as well as regional development banks), which would identify where the needs of SMEs aren’t being met, and prioritise lending.
Like the Tories, Jeremy Corbyn’s party vows to put an end to the culture of late payments. Anyone bidding for a government contract would be required to pay their suppliers within 30 days, and they will also develop a system of binding arbitration and fines for persistent late-payers for the public and private sectors.
Like both Labour and the Conservatives, the Lib Dems have been at pains to recognise the contribution the self-employed have made to the UK economy, noting that “the role of entrepreneurs and small businesses in delivering a thriving economy is fundamental.” But is this just lip service?
Similarly to Labour, Tim Farron’s party has vowed to reduce the Tories’ planned corporation tax cut. However, they have also proposed to reform the tax in order to:
“…Develop a system that benefits the smallest companies while ensuring the biggest multinationals cannot avoid paying sums comparable to nationally based competitors. We will consult on shifting away from a profits-based tax to one that takes account of a wider range of economic activity indicators, such as sales and turnover.”
They too make note of a plan to modernise employment rights to make them fit for the age of the gig economy, as well as stating that they will seek to improve the quality of vocational education, including skills for entrepreneurship and self-employment.
Another key item on the agenda is a review of business rates, with the plan being to prioritise the development of the digital economy and lessen the burden on smaller businesses. This would be coupled with a plan to double the number of SMEs participating in the digital economy by supporting ICT capital expenditure by businesses in non-digital sectors.
Whilst none of the manifestos get everything right, and whilst much hinges on the recommendations made by the Taylor Report later this month, it’s clear that the future of self-employment is a key battleground for all political parties.
As we’ve said on these pages many times before it’s crucial that, come Friday 9th June, whoever wins must recognise the outstanding contribution contractors and freelancers have made (and continue to make) to the UK. Legitimate and compliant forms of self-employment are vital and must be allowed to flourish and bloom – no matter who is in charge.