I have received half a dozen of emails from self-employed people complaining about the budget proposals to change the way that they are taxed.
The problem, as I see it, is not the policy itself, but David Cameron’s pledge when he said “as long as I am Prime Minister we will not put up national insurance contributions”. This became a manifesto pledge at the last election.
Trying to get round this by saying this was only meant to apply to class 4 national insurance contributions looks distinctly shifty. It would have been much better, though still controversial, to have said that pledge was made by David Cameron and he is no longer in office, and that our dramatically changed situation demands that the policy be changed too.
As to the substance of the Chancellor’s policy, I believe it to be fair. Self-employment enjoys advantages over being an employee when it comes to tax, and because self-employment is growing fast we are losing £billions annually because of this more generous tax treatment.
Changes in public policy, principally the fact that the self-employed will now have the same rights as employees to the state pension, have substantially removed the reasons for the more generous tax treatment of the self-employed. In fairness therefore, it follows that the tax treatment should be made more equal – which is what the Chancellor proposed.
My email correspondents complain that this is unfair because they don’t get entitlement to sick pay. True, but then their costs are lower because they are not paying employers’ national insurance contributions either.
They complain that they do not get maternity or paternity benefits, but I distinctly heard the Chancellor say that this would be changed to include them.
They complain that they do not get holiday pay. This is a complete red herring: tax and national insurance doesn’t cover holiday pay for any commercial enterprise. It is just part of the cost of labour that companies of any kind need to factor into their overall cost of doing business.
Whilst I believe that the policy of more equal treatment is fair, the question arises as to whether it will discourage entrepreneurs and risk-takers from making a go of it in self-employment, which is vital for the prosperity and growth of our economy. I certainly believe that we need to develop a tax system that more generously rewards these entrepreneurs with a risk appetite. Our current difficulty however, is that there is no way of distinguishing them from any other service provider who has simply chosen to be self-employed for the tax advantage of doing so. Equally, and for the same reason, it suits many undertakings to avoid having employees and to pay them instead as contractors.
I’m glad that the Prime Minister has delayed the legislation while we look at all these things in the round.
As for the present media storm, might its intensity have anything to do with the fact that so many of our broadcasters and journalists are being paid, not as employees, but as limited companies, or am I being just too cynical?