James Pinchbeck: Why are the self-employed of such interest to the Chancellor?

This story is over

The Chancellor’s post-Budget u-turn on the increase in Class 4 NIC for the self-employed was no doubt welcome by the self-employed, his own backbenchers and the opposition alike.

Whether it was to maintain the government’s election pledge or not to hit the self-employed with a tax increase – who knows, it was probably a mix of the two.

Much of the Chancellor’s reasoning for the proposed and now rescinded increase was around the fact that it is felt the self-employed don’t face or pay tax commensurate with their employed counterparts.

Whilst opting for self-employment is unlikely to be driven by such tax savings he presumably feels that the tax regime or tax take should be more equitable for both the employed and the self-employed.

Is this the end to tackling the issue by the Chancellor? Most likely not. Why? Well, perhaps one of the key drivers is the potential tax he is missing out on, which given the growing numbers of self-employed people, is likely to be increasingly significant and is a key part of his balancing of the books.

To put this in context the level of self-employment in the UK increased from 3.8 million in 2008 to 4.6 million in 2015.

Whilst this strong performance is among the defining characteristics of the UK’s economic growth, the recent rise in self-employment is the extension of a trend that started in the early 2000s.

Part-time self-employment grew by 88% between 2001 and 2015, compared to 25% for the full-time mode.

Given this background, why are more people opting for or taking up self-employment? There does seem to be a number of drivers for the growing levels which include:

Supplementing retirement income

To help fund retirement, or to delay the drawdown of a pension as well as to retain a work interest, many people of retirement age increasingly choose to or need to have some work-related income.

This is likely to be from part-time or reduced hours of work.

Those with children

Being self-employed is often an ideal solution to the work-life balance of bringing up children and working.

Increased work force flexibility and cost control

More and more businesses and organisations are open to the idea of contracting with or using self-employed people to undertake projects and work.

Such an approach can often help businesses to manage workforces and costs more effectively, through having the ability to respond to up turns as well as downturns due to seasonality and market conditions.

Switch from employment to self-employment

Perhaps one of the best illustrations of those switching from employment to self-employment is from within the public sector and the various local authorities.

The move to cut spend and to control budgets has seen a growth in the number of people leaving such organisations with a view to carry out the work they did on a contracted and self-employed basis.

Overall though in post-recession Britain and with a growing number of millennials now entering the workplace it seems more work suits self-employment and self-employment suits more people – not least from a work life balance.

The question is, are the self-employed likely to be the subject of the Chancellor’s attention again? One would imagine yes.

Whether he seeks to visit them once again in the Autumn Budget in November, who knows.

What is for certain is the introduction of digital tax returns for the self-employed from next April is bound to play a key part in his tackling the tax payments of those that prefer to work for themselves as opposed others.