The TUC has just published new research undertaken by Howard Reed showing the impact on the tax yield of the UK of the increase in self employment and the 'gig' or zero hours economy. As they note this is significant:
Looking at the impact of the shift to self-employment across the whole income distribution, alongside the growth of zero hours contracts, suggests that the exchequer is hit to the tune of over £5 bn, compared to a situation in which the balance between secure and insecure jobs in the economy had been static.
Fiscal impact of increased self-employment and ZHC working: lower bound estimate assuming the increase in self-employed workers between 2006 and 2016 is all sole traders paying Class 4 NICs (£bn/year) (Table 5.1 of the full report)
Source Self-employed ZHC employees total Income tax -1.09 -0.62 -1.71 NICs -1.58 -0.81 -2.39 Tax credits and benefits -0.77 -0.44 -1.21 Total -3.44 -1.87 -5.31
This is a loss of £5 billion a year, but there is an important caveat:
The report shows that the majority of the impact comes from the lower earnings faced by these workers, rather than the differential tax treatment of the self-employed. In this estimate, just under eight per cent of the impact on the exchequer from increased self employment comes from the impact of the different tax treatment, with the remainder due to lower incomes.
Looking only at the increase in low-paid self employment — where the TUC has focused our concerns about insecure work — the fiscal impact is still large – £4bn, with £2.1bn of this coming from the increase in self-employment in the bottom two quintiles of the income distribution, and £1.9bn coming from the rise in zero hours contracts.
In other words, insecurity imposes real and not just tax costs, many of which result from lower earnings for those forced to work in this way.
The Chancellor could take action to end these abuses. Most should focus on the insecurity and not the tax based on this evidence. The question is, will he?
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
No.
Of course not.
But then, Richard, your question was a rhetorical one, similar to a question in Latin beginning with “num’ and expecting the answer ‘no’.
Thanks for the link Richard – the report is an interesting contrast to the recent take from the IFS on the gig economy
However it looks like there is a potential error in the tax calculations. The second paragraph on page 23 completely mixes up the dividend and Personal Savings Allowance. In fact for 2016-17 there is a tax free dividend allowance of £5,000 regardless of the income of the tax payer
This aberration means that some of the figures in Table 3.1 need to be changed
I hope Howard is reading this
The narrative about the tax rates is also incorrect. Dividend rates of tax are still lower than normal rates, although not so much lower.
The overall tax rate on dividends, including corporation tax, is now higher (excluding the effect of the dividend allowance), whereas until April 2016 is was generally the same.
It’s a complex area, and I’d be more than happy to help out.
I note that the main message of the report seems to be that if people were being paid higher hourly rates for more hours, both they and the Treasury would have more money. I’m not sure that is an entirely novel conclusion 🙂 Although it is of course interesting to play around with counter-factuals.
Accurate figures or not – I fail to see how the gig economy will enable people to deal with paying for a mortgage or anything else that a steady regular and decently paid wage enables.
And why is it those who advocate it or tell us to learn to love the gig economy are those who already have made it and are financially secure?