The Budget, in British politics, is always a notable moment. From Gordon Brown to George Osborne, those holding the office of the Chancellor of the Exchequer have never quite endeared themselves as the (Alistair) Darling(s) of the nation. Phillip Hammond’s latest Budget ensures the status quo is maintained, as he introduced a raft of controversial measures – in particular, a proposed increase in National Insurance contributions (NICs) to be paid by self-employed people.
What are NICs and what’s the latest proposal?
Employees and the self-employed pay NICs to ensure they qualify for certain benefits such as state pension. Whereas employees are afforded a range of statutory protections, and pay into company pensions, self-employed individuals are not afforded such a luxury.
Hammond, more affably known as ‘Spreadsheet Phil’ to denote his captivating personality, announced that ‘Class 4’ NICs, which are paid by self-employed people, would rise by 2% by 2019. This is to be offset by the abolition of ‘Class 2’ NICs announced in 2016 and due to take effect in 2018 in order to increase the differential between the National Insurance rate paid by employees and those paid by the self-employed. The Tories believe this to be ‘fair’ as raising the ‘Class 4’ NICs reflects more equal pension entitlements.
In support of this, the Institute of Fiscal Studies claims that the bottom 40% of self-employed workers will be spared any income losses from the changes to the NICs, but the top 10% will be required to pay £430 a year.
Why the fuss?
By all accounts, this is a hugely controversial move: firstly, it is in breach of the Conservative Party’s 2015 election pledge; of course, the consequences of this are merely political. After all, the British public are used to fibbing politicians. Secondly, and more pertinently, this proposal is likely to have a significant legal impact on the so-called ‘gig’ economy.
The gig economy is a labour market that is characterised by the prevalence of short-term contracts or freelance work, as opposed to permanent jobs. Companies like Uber and Deliveroo are notorious for contracting with their workers via this method. Whilst self-employment comes attached with notions of flexibility and freedom to work to individual timetables, the harsh reality is that many workers in the gig economy are forced into accepting self-employed status (an outrageous example is the treatment of Sports Direct workers).
What are the implications?
The Conservative Party’s stance on the matter is that the policy is important in order to reflect a changing economy, as the number of self-employed people in the UK has risen dramatically. Leaving aside free market ideas of individual risk-taking and self-employment, this is a dangerous proposal. Redbridge Conservative Group Leader Paul Canal’s reason for supporting this change is because “there are some people who are doing the same jobs, but are classed as self-employed and saving a significant amount of tax.”
Within this statement lies an inherent paradox: an overwhelming majority of ‘self-employed’ people seek to be anything but that; instead, employers have, for their own convenience, drafted contracts in such a way to avoid meeting mandatory statutory duties that would otherwise be owed to employees. Many individuals in this position pine for employee – or at the very least – worker status, which is seen to be a subset of employee status). Moreover, the UK’s judiciary is alive to the tension between the political and working reality, as Lord Neuberger and Co have in recent months delivered judgments highlighting the precariety of working conditions and the need to ascertain the ‘true’ nature of the working relationship. Often, this means characterising the status of employees as workers rather than self-employed contractors.
In line with these advances in our law, TCC argues that Mr Hammond ought to go back to the drawing board and rethink his position. In practice, such contributions, whether as an employed or self-employed person, will be the same. In principle, the proposal is to be resisted in order to prevent employers from conferring self-employed status on their workers as a means of foregoing additional responsibilities. Legally, this is a wholly undesirable direction for the law to take because it risks individuals’ working conditions being manipulated for the commercial gain of employers.
By Kamran Khan