The shape of our economy is changing – and government needs to catch up

More sophisticated technology coupled with the necessity created by the 2008/9 recession and a slow economy since then has led to transformation in some areas of the UK economy – and the trend is set to continue.

This has clearly worried the government. Last week in the Spring Budget the chancellor announced an increase in National Insurance Contributions (NICs) for self employed people. This, we were told, will raise only a small amount of money now – but is designed to guard against a trend towards self employment and the threat to future tax receipts.

This shift in working patterns presents a challenge to the government, as people who work in more flexible, less traditional ways are more difficult to tax. And since the government expects more people to become self employed over the coming decades, it wants to change tax rates now to stop the gulf in tax collected from different types of workers becoming too large.

This plan went down like a cup of cold sick – so much so that it has been converted to a ‘proposal’ that will be ‘looked at’ after a consultation. The reasons for the uproar are simple: self employed people have it hard. They sacrifice job security and benefits like sick pay, holiday pay and employer pension contributions, and expect to pay a little less tax in return.

The benefits of self employment are an accepted reality for most Conservatives, but they are worth repeating: self employment is the first step towards entrepreneurialism. A portion of today’s self employed people go on to become the micro business owners of tomorrow, a portion of whom in turn become the SME owners of next week – where most of the growth in the economy and jobs comes from. Adding even more blocks and disincentives on this path will have consequences for the economy down the line.

Self employed people have also add flexibility into the workforce. Through the lean years since 2008 we have found that unemployment and claimant count figures have been kept down by more people going self employed. For some this is a positive choice, but many have few other options and are doing work with less security and less money simply to avoid unemployment.

The government has – correctly, in my view – anticipated that the trend towards self employment will continue.

It is driven by two key things: first, businesses and the economy are becoming more dynamic. They move more quickly and need more flexible workforce arrangements; new and small businesses are less able to guarantee work permanently, and so cannot offer as many permanent jobs. Other industries have become less secure and predictable, with the same result: work cannot be guaranteed, and so people cannot be employed permanently.

Second, the preferences of individuals are changing – especially young people. Not everyone wants or enjoys the ‘security’ of a 9-5 job. Increasing numbers of people are more interested in work-life balance; they want to be able to work around their family’s needs, travel for part of the year, do more than one type of work at once, or take advantage of new markets opened up by the internet.

But as we’ve seen in the fallout from the NICs announcement the solution to the government’s tax problem is not to try and force these more dynamic workers into the same boxes as the traditionally employed. Coupled with the tightening of IR35 regulations and the changes to director’s dividend tax, this feels like an assault on entrepreneurs and more dynamic working patterns.

In its accountant-like desire to order people into columns in a spreadsheet, the government – urged on by HMRC – risks stifling innovation and growth in our economy. But on an individual level it also risks making people’s lives harder as they strike out on the path to entrepreneurialism – or simply seek to balance work with their family responsibilities.

Instead of trying to order these people into convenient boxes, the government should be looking to simplify and flatten the tax system, and working to make every interaction with the government as simple as possible for the self employed and small business owners. 


Emily is the Chairman of Conservatives for Liberty. Follow her on Twitter: @ThinkEmily

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The views expressed in this article are that of the author and do not necessarily reflect the views of Conservatives for Liberty