Rachel Reeves: Tories want to cut taxes for big business but growth of the gig economy demands we help the self-employed now

Rachel Reeves

The gig economy and speedy growth of firms like Uber and Deliveroo have contributed to a rise in self-employment of 14 per cent over the last five years and 25 per cent over the last ten years.

But the percentage of self-employed workers saving into private pension schemes has dropped from 23 per cent in 2009/10 to 16 per cent in 2014/15 as many struggle with the insecurity and low wages that often accompany work as an independent operator.

Fewer self-employed people can buy their own homes and getting a mortgage can be much harder.  Some enjoy the freedom of working independently, but it is a precarious lifestyle for many others.

A group of entrepreneurs I met in Leeds highlighted the numerous challenges they face, including poor access to funding for small businesses and start-ups and a complex tax regime. 

Yet, it is clear the growth in self-employment looks set to continue and could soon overtake public sector employment when it comes to the size of its share of the UK labour market.

In 2011, there were 1.5 million more people working in public sector than those who classed themselves as self-employed.

But the Office of Budget Responsibility estimates that by 2021 the two sectors will be of equal size, due to a shrinking total of public sector jobs and the surge in self-employment which is growing far quicker than private sector employment.

These seismic changes to the nature of our economy and employment market come with a series of important challenges for the government, employers and those who work for themselves.

We need to examine ways we can make sure the self-employed can better save for the future and their retirement, buy their own homes, and benefit from basic workers’ rights.

That’s why I am publishing a pamphlet today with the Social Market Foundation that seeks to address some of these challenges and present potential solutions.

We need to develop policies and create an infrastructure around self-employment that safeguards economic inclusiveness and encourages entrepreneurship, while recognising there is no one size fits all solution.

Perhaps the single biggest challenge is how to ensure workers’ protection in the form of social security and issues like how they cope with sickness and or the need for time off to have a baby.

One option would be to level the playing field between the employed and the self-employed when it comes to national insurance contributions (NIC) and strengthen the argument for the self-employed to receive other state benefits.

Yet, for many, a mandatory increase in NIC would create significant financial difficulties. And, a voluntary system whereby a self-employed person could make contributions that covered, for example, sick pay and maternity pay  might see people only contribute if they believed they would directly benefit.

But the government must not shy away from finding a solution just because it is a tricky area.

I would like to see the government to look at whether a voluntary NIC contribution system could be extended to cover sick pay and parental leave for the self-employed.

Ministers should also re-order their priorities when it comes to business and boosting our economy. The government’s plan to cut corporation tax does nothing for the self-employed.

Instead of cutting corporation tax further, the government should prioritise help for small businesses and the self-employed with targeted reductions in national insurance for small businesses employing the first worker or business rate cuts for new firms.

On pensions, I think the services of the workplace pension scheme NEST should also be targeted at the self-employed so that they have the option and ease of contributing to a pension.

And, we should be seeking to ensure more self-employed people can get affordable mortgages. The Council for Mortgage Lenders should look at how self-employed people can be helped without a return to the self-certification mortgages that created havoc during the financial crisis.

Another important step would be to reform universal credit so it better reflects actual earnings for a self-employed person, rather than an assumption that they are consistently earning the “minimum income floor”.

The government should seek to embed entrepreneurship in our education system and encourage more training opportunities.

There should be mentoring schemes at universities to help those thinking of working for themselves. Job centre advisers should also be trained to help people who are interested in self-employed work.

Yet, what is clear is that policy in Westminster cannot solve all the challenges alone. We must ensure the self-employed are supported locally – from shared space buildings to help them cut costs to support from businesses, the third sector, trade unions and co-ops.

Trade unions and co-ops can help with advising the self-employed, lobbying for them nationally and providing support and advice, whether on pensions and mortgages or on assisting self-employed people who are forced to chase late payers.

The problem of late payers was highlighted by self-employed people I met at the Camden Collective for start-ups in north London. They said the issue was a major difficulty because they did not feel in a strong enough position to press clients for the money.

One solution could be an escrow system that would see an agreed sum into an account before the work starts. The cash is then released to the independent contractor when the work is finished.

These are just a few of the ideas we should be looking at to bolster the prospects of self-employed and improve the rights of those working in the gig economy.

We must have a balanced, growing economy that offers the same fairness and opportunities to the self-employed as workers in other sectors.

Rachel Reeves is MP for Leeds West and a member of the Treasury select committee.

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