Outrage abounds in the wake of Philip Hammond’s 2017 Budget announcement on Wednesday. Amongst other controversial moves, National Insurance (NI) payments on the self-employed have been increased by 2%. But what effect will this raise have on the growing number of self-employed and freelance workers in the publishing industry?
Let’s start by looking at the cold, hard figures. The 2017 Budget has brought in a 2% rise in NI contributions for the UK’s self-employed workers. The self-employed normally pay one of two different kinds of NI: Class 2, if your profits are £5,965+ per year, and Class 4 if they are £8,060+ per year. Class 4 payments are divided into two categories: 9% on profits of £8,060-£43,000, and 2% on profits over £43,000.
The proposed two percent raise will take place on for Class 4 payments, for profits between £8,060 and £43,000 per year. The rates will increase from 9% to 10% in April 2018 and 11% in April 2019, while NI contributions on profits over £43,000 will remain steady at 2%. This hike in NI payments coincides with the abolition of Class 2 rates already due to take place in 2018.
According to the official figures, this means the average self-employed worker will pay 60p more a week in tax, and 2.5 million workers will face an average annual increase of £240. The Treasury has stated that taking into account personal allowance changes due to come in over the next two years, nobody under £16,250 will be worse off. The Government will raise a total of £145m per year from these increases.
Getting into the nitty-gritty: an attitude for concern
These numbers don’t seem drastic, and they are unlikely to cause widespread disruption for the self-employed in publishing, whose overheads are relatively low and who don’t have the same restrictions on their contracts as, for instance, NHS workers, many of whom have been pushed to tipping point by this move.
However, these figures indicate a fundamental misunderstanding of the realities of self-employment on the Treasury’s part, which should be cause for concern. Mr Hammond has justified the hike in self-employed NI contributions by saying that the disparity between the rates paid by the employed and the self-employed “undermines the fairness of our tax system”. He has also implied that the reason for the “dramatic increase” in self-employment may be due to these “differences in tax treatment” and shouldn’t be. The Prime Minister’s spokesman later added: “The point of this Budget is to address an unfairness that has existed for some time.”
Yet, these differences in tax treatment are there for good reason. Not for nothing are the self-employed called the “precariat”: they constantly sit in the crucible of financial uncertainty, with fluctuating profits, short-term contracts, short termination periods, and no holiday or sick pay. Moreover, the self-employed have to take care of their own insurance, accounts, travel and expenses. In lean times, they have to work through their savings before they can receive benefits, which is not the case for traditionally employed workers.
Mr Hammond has bandied around some convincing-sounding figures about the discrepancy in taxation, but he added the employers’ average NI contribution of 13.8% to those of their employees to make the difference seem larger than it is. To put these “tax-benefits” into perspective in terms of the costs to the actual workers, employed workers pay a Class 1 contribution of 12%. That’s only 3% more than the self-employed, and after the budget is set to become only be 1% more. The benefits gained through tax breaks to the self-employed do not – and never have – outweighed their extra expenses and loses.
Worse still, the NI contributions changes actually break a key Conservative manifesto promise from the 2015 election, which explicitly stated that “we [the Conservatives] will not raise VAT, National Insurance contributions or Income Tax”. When confronted about this, Hammond has said that “Britain’s circumstances have moved on” in light of the EU Referendum, before paradoxically reassuring self-employed workers that they were not paying the price for Brexit!
Implications like this further annihilate workers’ ability to swallow the Chancellor’s various claims the tax hike is in aid of “fairness”, evening out the pensions scheme, or in aid of “public services”.
An unusual unity
However, the changes have caused a unity amongst politicians, papers and people that has become rare in recent times. This is perhaps in part because they kick the underdog. The changes proposed will only affect only those on lower incomes, while taxation on profits over £43,000 remains frozen.
But it is also because these changes endanger the spirit of entrepreneurism that has been growing in strength throughout the UK in recent, and which many in Whitehall hold close to their hearts. Self-employment has ballooned in recent years, particularly in publishing, and it isn’t going to disappear. As the world becomes increasingly digitized and flexible, freelancing is emerging as the powerhouse of the future. Putting blocks on the expansion of the freelance market, especially for those on lower incomes who are just starting out, will only serve to put the UK behind at a time when it needs to be looking ahead. A far cry from the “strong and stable platform” Hammond has promised the Budget provides moving forward in our negotiations to leave the EU.
Labour, UKIP, and the Lib Dems have united in their condemnation, and Hammond is facing rebellion from the Tory backbenches, too. Meanwhile, the national press has united against the “clobbering” of the self-employed, from The Guardian to The Sun.
To me, this unification is the most interesting aspect of this year’s Budget announcement: at last, we finally all agree on something again. It unites against the average Joe bearing the brunt of the budget again and against the spin of inconsistent messages emanating from all our politicians of late. Though there is legitimate pressure on the government to give immediate and significant support to social care budgets, which have been indiscriminately slashed to the “brink of collapse”, this hardly seems like the optimum solution to that problem.
Get your story straight, Mr Hammond, because frankly, nobody ever went freelance for the tax breaks.