Government should be 'extremely worried' about fall in self-employed people

Sir John Redwood MP

Sir John Redwood, a Conservative former minister, has voiced concern to the Commons, saying the current Government should be “extremely worried” about the plummeting number of self-employed workers.

He cited a reduction in the number of self-employed individuals by over 800,000 since 2019, attributing this partly to what he considers a “self-inflicted tax route”. Changes in Government tax legislation have shifted the obligation to determine tax status from the individual contractor to the business.

Expressing his concerns further during the Finance (No.2) Bill evaluation on Wednesday, Sir John (Wokingham) said: “One of my proposals to the Government is that they should be extremely worried about the large decline in self-employed people since 2019. Now some of that was the inevitable consequences of lockdown, leading to older people who were working for themselves deciding that they obviously couldn’t during lockdown and they decided to retire a bit earlier.”

“But quite a lot of it wasn’t. Some of it was people of younger ages who were deterred by the experiences, and some of it was that young people are not coming forward to replace those who were self-employed.”

According to Sir John, the slide in self-employment wasn’t solely due to lockdown or disturbances at that period. “Because I don’t think it was just lockdown, or the disruptions around that time that caused this problem. I think it was also the IR35 tax changes which went through in two tranches, culminating about the time that we experienced the lockdown problems.”

“And we have lost over 800,000 self-employed partly through a self-inflicted tax route, and the decision was taken in two stages to introduce the idea that the person acting as the customer of the self-employed contractor had a duty to satisfy themselves about the tax status and could be liable if they had made a mistake in their tax status.”

“And that meant it became extremely difficult for quite a lot of self-employed people to get contracts from say smaller businesses or bigger business, because why would the executive take the risk if they could in the end be tied up in a dispute with the revenue that they didn’t want? “.

Opening the committee stage of the Bill, Treasury minister Nigel Huddleston stated: “Income tax is a vital revenue stream for our public services, without which we could not fund these public services including our schools, and our hospitals and defence and so it is important that we keep it at its current level.”

Intervening, Independent MP Jonathan Edwards questioned: “The emails I receive from constituents ask me, why is the Government not unfreezing the personal tax thresholds? “.

Mr Huddleston responded: “We all know that because of the level of intervention that we had to take out of necessity during the pandemic, and in response to the cost-of-living challenges, meant that Government intervention was far higher, far greater than any of us anticipated.”

“To the tune of £400billion in the pandemic and £100billion for the cost-of-living challenges, that money obviously has to be paid back, and I think most of our constituents know that. Now economic circumstances are changing, we have turned the corner and we are able to reduce taxes, for example with the 27 million people who will be receiving £900 on average extra through the national insurance cut because of the measures that we have taken.”

Mr Edwards posed the question: “By not unfreezing the personal allowances, isn’t the Government just taking money from one pocket and putting it back in the other? “. People should expect a “direct impact” from the cuts to national insurance in their pay packets, Mr Huddleston confirmed.

Labour’s shadow Treasury minister James Murray insisted that the Government needed to “come clean” on how the fractions of people taxed at 20% and 40% would shift over the next three years. According to him: “We want the Government to admit the impact that their six-year freeze to the income tax personal allowance, and the higher rate threshold will have.”

Plaid Cymru MP Ben Lake (Ceredigion) opined that the Bill should address the “respective needs” of the four nations of the UK. He informed MPs: “The Welsh tax base is different to others in the UK, wages in Wales are much lower than the UK average, productivity is lower, and our proportion of elderly citizens is higher than the average across the United Kingdom.”

“Now we should ensure that tax system reflects this reality. And at the very least, we should make sure that we understand fully the differential impact of tax decisions on these different areas, whether it be the freezing of the personal allowance, reductions to national insurance contributions or indeed decisions on corporation tax.”

Conservative former minister Christopher Chope (Christchurch) said: “I’m not a happy bunny”, and elaborated on his stance with: “The reason I’m not happy is because we are not committed to reducing the corporation tax in the long-term.”

Treasury minister Gareth Davies provided his perspective, said: “We all want tax to come down … we have included a provision and a rate to ensure that 7% of businesses, the smallest businesses, the least profitable businesses maintain a rate of 19%.”

He also addressed the recent tax increase, explaining: “We’ve had to increase the rate in the face of an incredibly challenging environment on the back of Covid and the war in Ukraine, when the Government stepped in with significant support for businesses, families, and individuals across the country.”

Mr Davies concluded with a note on fiscal strategy: “The extension to 25%, I can tell him, will raise about £85billion which will help reduce our debt over the long-term.”