Budget 2017: The self-employed dodged a bullet this time - but they should have been given some help

Budget 2017: The self-employed dodged a bullet this time - but they should have been given some help

A crackdown on freelancing gigs. A slashed VAT threshold. Another assault on their national insurance contributions. A one off levy on home offices, and a special tax on cheap packets of pencils from Poundland. Okay, I made those last two up. But all the others were measures that were seriously rumoured in the weeks leading up to this year’s Budget speech from the Chancellor, Phillip Hammond. 

As it turned out the speculation may have seemed wide of the mark, but these things were being considered. It was the extensive lobbying that got them dropped or at least delayed for another year. In that sense, Britain’s growing army of self-employed could breath a sigh of relief. They dodged a bullet, and that is always something to be grateful for. 

But it was also a missed opportunity. Self-employment is one sector of the British economy that is genuinely booming. A Budget to actually help people who work for themselves is long overdue. Maybe one day we will get one – but it didn’t happen this year.

In the weeks leading up to the Budget, there were plenty of reasons for the self-employed to feel nervous. They have been under attack by the Treasury for the last few years. 

First there was a radical overhaul of the way dividends are taxed, designed mainly to collect more from the personal service companies set up by many people who work for themselves. Then there was a bungled attempt to raise their National Insurance Contributions. 

This time around, there were reports of a crack down on freelancing, extending rules already introduced in the public sector to the private; another attack on NI; and perhaps worst of all, a potential reduction in the VAT threshold to around £20,000 a year. A move that would sweep millions into the tax system, and potentially put many of them out of business.

In the end, none of those actually happened. It was a quiet Budget for the self-employed, with a mere review of IR35 freelancing rules announced, and with the VAT threshold frozen for two years.

The Chancellor was, quite rightly, more concerned with trying to fix a dysfunctional housing market, and preparing the economy for leaving the EU, than with yet another round of rules changes for people who work for themselves. That would have been a relief. 

No change is good news when the changes only ever seem to be for the worse.

And yet, when you pause to think about it, it is crazy that the self-employed should be grateful not to be mugged in the Budget. This is, after all, one of the most dynamic and fast-growing sectors of the economy. Just take a look at some of the numbers. 

There are now 4.85 million self-employed people in the UK, an increase of 148,000 in the latest quarter. That is 15.1 per cent of the labour force, and closing in fast on the numbers who work in public sector. 

Without them, the overall employment levels would not be nearly as good. Sure, some of them are doing low-paid, insecure work – but there is plenty of low-paid insecure ‘employment’ out there as well. Many more of them are high-earning, skilled professionals who have decided they prefer the flexibility and independence of working for themselves. 

After all, there are lots of jobs out there right now – 148,000 people would not have decided to go freelance in the last quarter unless it was a good deal. 

The Budget, like most speeches from the Chancellor, included specific help for certain sectors. Self-driving cars got a boost. So did knowledge-based start-ups through an extension of the Enterprise Investment Scheme. Why shouldn’t the government design a raft of policies to help the self-employed and included that in the Budget as well?  

What would that look like? For starters, instead of lowering the VAT threshold, why not make it higher. After all, £83,000 is hardly a fortune these days. It is a disincentive from expanding. 

Most self-employed people would probably rather earn £75,000 in a year and save themselves the nightmare of quarterly VAT forms than make £90,0000 and have to register. 

Worse, it makes their services more expensive because they have to add the tax on top. There isn’t any other sector where there is an effective cap on businesses expanding. Why not introduce a self-employed threshold of £100,000 or even £150,000, but make it applicable only to self-employed individuals rather than companies? That would help a lot of people expand their workload. 

Next, why not let them hire one assistant without having to pay their National Insurance? One problem for the self-employed is that they work too hard. On average they do 38 hours a week, compared with 36 hours for employees. Of that, 13 per cent put in more than 60 hours a week, compared to only three per cent of employees. 

We all know the reason. They need to do the job itself, and keep on top of all the paperwork that goes with it. If they hire just one person, then they get into the nightmare of employment legislation, and National Insurance – and that makes VAT look simple. 

How about letting them take on one person, with no NI to pay? It would free up their time, allow them to take on more work, and create a lot of jobs at the same time. That sounds like a pretty good outcome.

Finally, how about ripping up some red tape? Cut back on the amount of paperwork they have to do, and simplify their tax returns. 

Just because someone is a good freelance web designer, it does not mean they are good at keeping their tax returns – so why hold them to the same standard as a company with an accounts office. 

If self-employment rises this quickly with zero help, then think how much faster it might rise if the sector got a few extra breaks? 

The Budget, for once, didn’t include any specific attacks on the self-employed. But it didn’t include any help either. That is a missed opportunity, because people who work for themselves are now a key part of the economy. 

By Matthew Lynn, financial colomnist