"The report’s proposed auto-enrolment of the self-employed via the tax system plus the government top-up of 4% of earnings would cost the Treasury in excess of £3 billion a year"
Commissioned by IPSE, Demos’ report shows that there has been a significant growth in self-employment since the year 2000, much of it driven by the over 65s.
With 4.8 million people, it argues that self-employment is almost as big as the entire public sector and must be brought into mainstream political discourse.
The package of proposals includes auto-enrolling the self-employed into a state organised scheme (possibly NEST) using the tax system, and a government top-up contribution equivalent to the employer contribution paid for auto-enrolled employees.
It also wants to see a new tax charge of 2.5% (rising eventually to 7.5%) on firms contracting self-employed labour.
Alan Lockey, Demos’ head of modern economy and the report author, commented: “The rise of self-employment is one of the biggest changes to the modern economy in the last couple of decades. We need to think pragmatically about whether we should actively encourage it – it could be that it is the British solution for a more flexible, less rigid approach to life and work in the future, as it already is for millions of people. That means we need a new deal to boost security for the self-employed.”
Tom McPhail, head of policy at Hargreaves Lansdown, added: “There is a significant misalignment between employment law and taxation on the one hand, and the needs and interests of the self-employed on the other. We estimate the report’s proposed auto-enrolment of the self-employed via the tax system plus the government top-up of 4% of earnings would cost the Treasury in excess of £3 billion a year, which looks like a lot to ask for right now. The Treasury could introduce the proposed contract labour tax charge to help pay for it, but that too looks difficult given the impending Brexit headwinds.”
“The vast majority of the self-employed do not start life as self-employed; they go through the workplace first. This means they are already being enrolled into the pension system once. Rather than just letting them go when they become self-employed, we should be using the opportunities we already have to engage the self-employed and keep them saving for retirement when they leave employment. This could be achieved with only minor changes to the auto-enrolment system and at no cost to the government.”
