Fears self-employed are soft target for Chancellor going in search of £20bn
SELF-EMPLOYMENT is on the march in Scotland, with 44 per cent more women and 13% more men working for themselves since the financial crash of 10 years ago this month.
But concerns are growing that Chancellor Philip Hammond again has the self-employed in his sights for a Budget tax grab, as he casts around for cash to fund the UK Government’s £20 billion NHS promise.
In the past decade the proportion of the Scottish workforce who are self-employed has risen from 14.1% to 15.8% for men and from 6.3% to 8.6% for women.
The Federation of Small Businesses has said boosting self-employment “could help to turn around some of Scotland’s most disadvantaged places”.
Following his first Budget last year, Mr Hammond was forced into a humiliating retreat from raising national insurance contributions for 2.5 million self-employed people after admitting it flew in the face of a Tory manifesto tax promise. But the Chancellor still defended the policy, saying it was right to “reflect more fairly the differences in entitlement” between employed and self-employed people.
However, the FSB takes a different view, saying: “You have to maintain some tax differential because you need to back people taking on the risk of starting their own business.”
Last week it emerged the Chancellor has made a U-turn on the Government’s promise to scrap flat rate Class 2 national insurance contributions (NICS) for the self-employed, which would have saved over three million workers £150 a year.
FSB national chairman Mike Cherry said the decision “raises serious questions once again about the Government’s commitment to supporting the self-employed”.
He added: “Class 2 NICS is a regressive levy that indiscriminately hits sole traders and makes life even tougher for those who are hard up. Once you’ve reached a minimal income, there’s no tapering or means testing in place at all. As things stand, you can be earning below the living wage and still be paying two sets of NICS as a selfemployed person. All the while you’re wrestling with a Universal Credit system that’s trying to strong-arm you into full-time employment.”
Universal Credit, the Government’s overhauled benefits system, is seen as penalising the selfemployed because it ignores the volatility of their incomes.
This week business leaders learned that the Chancellor is now poised to axe the flagship New Enterprise Allowance scheme, despite regularly talking up how the scheme has helped over 100,000 people start their own business since 2011.
Andy Chamberlain, deputy policy director at the independent professionals and self-employed group IPSE, said: “Encouraging people into selfemployment and to run their own businesses is an overwhelmingly positive thing for the economy, as it lowers unemployment and boosts government coffers in the long term.
“The Government should think carefully before axing the allowance, and IPSE would like to see it reformed rather than repealed.
“What is doubly damaging about this move is the fact that it comes just 24 hours after the Government decided to backtrack on its pledge to abolish Class 2 NICS. Both moves are fundamental breaches of faith with the self-employed.”
As the Chancellor prepares his autumn Budget against a background of a £20bn pledge for the NHS, there are concerns that further raids could be in prospect.
The FSB said there is now “a sense that since a lot of money needs to be raised, small businesses and the self-employed are a soft target”.
It has warned that the VAT threshold for a small business – currently £85,000 – could be reduced, adding to burdens and inflating costs to customers. It is also concerned that the Treasury may again slash the tax-free dividend allowance, which is invaluable to small company directors and their families.
Introduced by former Chancellor George Osborne as a £5,000 allowance, the allowance was slashed to only £2,000 in Mr Hammond’s first Budget. The FSB estimates that scrapping it altogether would raise an extra £1.3bn by 2022 on top of the £2.6bn the Treasury expects to gain from the original cut
Already this month the Government has admitted it is backing away from full support for a pensions dashboard that would enable workers to monitor all their pensions in one place.
Mr Chamberlain said: “With just 31% of the selfemployed saving into a pension, the Government must have a role in solving this crisis. IPSE is bitterly disappointed that the Government has now backed down on its earlier promise to deliver the crucial pensions dashboard.”