There are over four million self-employed workers in the United Kingdom. They are natural Conservatives. Class war rhetoric passes them by – they constitute labour and capital combined in one body. Their values of independence, risk-taking, enterprise and hard work are the embodiment of what the Conservative Party should be seeking to reward. Yet many of them feel penalised rather than rewarded by their experience of Tory government in recent years.
There are plenty of grievances. But a prominent one is the dreaded IR35. This was an onerous measure which sought to drag the self-employed back to the heavily regulated clutches of the corporate state. It was a legislative measure brought in by Gordon Brown when he was Chancellor of the Exchequer. The self-employed were to be presumed guilty of ‘disguised employment’. Investigations would take place with the aim of reclassifying contractors who worked with a single client as ‘deemed employees’. They would have to prove their innocence or lose their freedom. The state would decide the definition of being self-employed and then decide who passed the test.
This was a punishment beating for those seeking to stand on their own two feet. It was revenge on those wishing to escape the rat race of fixed hours, statutory notice periods, set holiday entitlement, futile office meetings, deference to dimwitted line managers and the terrible threat of being summoned to the Human Resources Department for some ‘inappropriate’ comment.
Bliss was it in that dawn to be alive on May 11, 2010 when David Cameron entered Downing Street. But to be self-employed was very heaven! The Coalition Government pledged to replace IR35 ‘with simpler measures that prevent tax avoidance but do not place undue administrative burdens or uncertainty on the self-employed, or restrict labour market flexibility’.
Years of disappointment followed. The forces of administrative inertia prevailed. Indeed the restrictions became worse during Theresa May’s premiership. But then, in September 2022, Kwasi Kwarteng stood up in Parliament to deliver the Growth Plan, or ‘mini-Budget’ and announced:
We can also simplify the IR35 rules – and we will. In practice, reforms to off-payroll working have added unnecessary complexity and cost for many businesses. So as promised by the Prime Minister, we will repeal the 2017 and 2021 reforms.
The accompanying statement added that ‘workers across the UK providing their services via an intermediary, such as a personal service company, will once again be responsible for determining their employment status and paying the appropriate amount of tax and NICs’.
The Treasury did project a modest loss of tax revenue as a result of £1.1 billion a year. But this was on ‘static modelling’ – it ignored the incentive impact to earn more when working for yourself. It also ignored the cost to the HMRC – as well as the self-employed – of the regulatory burden of IR35 and the impact that had on the economy.
I doubt if this proposal had any responsibility for the market turbulence during Liz Truss’s premiership. All the tax cuts combined were relatively small beer, compared to the taxpayer bailout of our energy bills. Yet it got tossed aside in the general panic.
Since then I understand that proposals from Conservative MPs to revisit the issue have been rebuffed on the basis that it would be ‘toxic’ to concede that Truss got anything right. An absurdly childish way to conduct public policy but, I’m afraid, not implausible.
Enter Nigel Farage, always a man with an eye for the main chance. The Reform UK manifesto (or ‘contract’) published this week pledged to ‘Abolish IR35 rules to support sole traders’ adding that: ‘Britain’s self-employed often work longer hours and take more risks. Many have no pension and receive no sick pay.’
In April, the Financial Times reported that on a survey carried out by the Association of Independent Professionals and the Self-Employed:
Controversial reforms to the tax rules affecting the hiring of freelance labour are driving an increase in individuals opting out of work, data has revealed, sparking calls for a review of the policy.
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A survey of more than 1,300 contractors published on Friday found that one in 10 contractors gave recent changes to the off-payroll working rules, known as IR35, as the reason they were not currently working.
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Since April 2021, the decision about whether freelancers working in the private sector should be considered self-employed for tax purposes – known as ‘outside IR35’ – or employed has moved from individuals to their hirers. Similar rules have been in force in the public sector since 2017. The switch puts the final responsibility for paying the right tax on the hirers.
It added:
Overall, 55 per cent of contractors said they had rejected an offer of work in the past 12 months due to it being deemed ‘inside IR35’ by the hirer. Meanwhile, 24 per cent of those surveyed said they planned to seek contracts overseas this year to escape the rules – which do not apply to foreign hirers.
Complete madness. The surprise is not that Reform UK includes this pledge but that the other parties ignore it, given the strength of feeling and the clear evidence of economic self harm that has resulted. The Conservative Manifesto does offer the welcome promise ‘to support the self-employed by abolishing the main rate of self-employed National Insurance entirely by the end of the Parliament’. But nothing on IR35.
So far as Labour is concerned again there was nothing. All the self-employed got was vacuous stuff about how Labour would ‘take action’ on late payments and ‘improve guidance’ to exporting for small businesses and seek ‘reform of the British Business Bank’.
To be fair there has been a change in Labour’s rhetoric. Wealth creation is now to be celebrated. Asked about Peter Mandelson’s comment of being ‘relaxed’ about people making money, Sir Keir Starmer adds: ‘I’m relaxed as well as being doggedly determined’.
Rhetoric does matter. Many socialists will have been displeased by Sir Keir’s remarks. Inevitably, encouraging wealth creation means inequality. It means more billionaires. It is at odds with the sullen mentality that claims such success should be thwarted as ‘they’ve got enough already’ or that the rich should be taxed more as ‘they can afford it’ and which ends by saying ‘good riddance’ if they go abroad.
Economics is not just about graphs in textbooks. There is a human element. If entrepreneurs face a hostile environment they respond. So Labour’s new tone is welcome. But how much better it would have been to have backed it up with some specifics for the self-employed.
It is not too late. Few votes have yet been cast. The manifestos might have been issued but there is no prohibition on further policy announcements.
If the other parties wish to check the advance of Reform UK, then the best thing would be to quietly steal one of their policies. When the self-employed decide who to back on polling day they will take note of who is offering to set them free from IR35.
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