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Privileged’ workers benefiting most from greater self-employment

Bankers and public sector – not drivers and couriers – are driving growth in self-employment, thanks to tax advantages

‘Privileged’ individuals who benefit from significant tax advantages are responsible for most of the rapid growth in self-employment, a new study from the Resolution Foundation has suggested.

The report concludes that despite the popular perception of self-employment revolving around the ‘gig economy’ – which includes couriers and drivers, as well as those taking on task-based work via online platforms – 60 per cent of the growth in self-employment since 2009 has taken place in lucrative sectors including advertising and banking, which make up less than half of the UK’s self-employed population.

The advertising sector has experienced growth of 100 per cent, followed by public administration (90 per cent) and banking (60 per cent). By contrast, the sector that includes taxis has increased by 7 per cent since 2009, despite widespread attention on ride-hailing service Uber. The remaining growth in self-employment has occurred in the more ‘precarious’ sectors that make up the majority of the self-employed workforce, such as construction and cleaning.

The considerable tax advantages available to self-employed workers in highly skilled and highly paid sectors are giving them a significant advantage over the majority of the self-employed, the Resolution Foundation claimed, creating a hollowing out of the self-employed and effectively leading to winners and losers.

“Behind the headlines, the real recent growth area for the self-employed has been in lucrative sectors such as advertising and banking,” said Adam Corlett, economic analyst at the Resolution Foundation. “This rise is driven in part by a very favourable tax treatment worth thousands of pounds a year to higher earners – just one element of which is set to cost the Treasury £6bn a year by the end of the parliament.”

According to the report, a self-employed worker who costs a company £100,000 enjoys a tax advantage of more than £7,000 over a similarly expensive permanent employee, while a self-employed worker in a ‘precarious’ sector costing a firm £10,000 enjoys a minimal tax advantage of just £200. However, they still forgo employment rights, from the national living wage to statutory maternity and sick pay and protection against unfair dismissal.

Ian Brinkley, acting chief economist at the CIPD, stressed that tax advantages were unlikely to be the only cause of the disparity in self-employment growth.

“Tax advantages have existed for a long time – they may have increased since 2011 as employee taxes and the cost of employment have gone up, creating trends on both the employee and employer side to mutually agree on a self-employed status and enjoy the financial benefits. But it doesn’t feel big enough to fully explain the increase,” he said.

“There are other issues to consider, including the big shift towards outsourcing across the public and private sectors in recent years, and the fact that it’s a lot easier to be self-employed if you have skills that are in demand. And a lot of people are choosing self-employment out of a desire for greater independence and job satisfaction. Tax advantages are just one aspect of a much broader picture.”

Some experts believe the trends in self-employment form part of a significant structural shift in the labour market, with the polarisation between high and low-skilled employees likely to widen. “It’s likely that many issues that have existed in the labour market for a long time will continue, such as the blurred status between employee and the self-employed, with more people sitting in that grey area,” said Brinkley.

This trend has been noticed in Whitehall, which faces losing a significant tax take if self-employment takes hold more broadly. The government recently launched an inquiry into the rights of gig economy workers, and has already introduced changes to the IR35 regulations governing how freelance contractors in the public sector are taxed.

“Rising self-employment has been the biggest jobs story of the last decade, accounting for almost half of all employment growth since the financial crisis” said Corlett.

“With the number of self-employed workers approaching five million, we need to start addressing some of the challenges it brings. This should include more security for workers at the bottom end of the market, but reforms should also reduce the unfair tax advantages that the wealthy self-employed particularly benefit from.”

Full article on CIPD