The budget

I've been cogitating on the NI proposal since Wednesday and was somewhat taken aback by the strength of the media response. I wasn't aware of Taylor's review and agree that awaiting that is sensible before deciding the way forward. However, the whole NI debate is really huge isn't it? The post war NI system developed at first to offer an increasingly wide range of contribution based benefits in an employment structure with few self employed. Now the range of contribution based benefits has shrunk enormously - the latest example are the changes to bereaved married parents. So in that respect, the NI system is nothing like the 'value for money' system it once was. I accept that the se get less value from it but the gap between NI benefits for the employed and se has never been narrower. In addition of course, the employers of the employed pay in a hefty 14% ( approx) into the system. IMO I find the whole NI system not fit for purpose - it's just another form of taxation really but one unfairly levied on those who work and those who employ. 'Unearned' income is taxed therefore at a much lower rate. The other unfairness has been mentioned above that if you continue to work after SPA, you do not pay NI on any earnings.

So my starting point really is that the whole system needs a complete overhaul. However, looking at the specific se issues. I was struck by responses here and elsewhere that mentioned the security of employment vs se. There has not been for a long time an employee workforce with less security and fewer rights - zero hours, short term contracts, large fees for going to an ETa and some think this will get worse once we leave the EU. So the idea that automatically se=insecurity, e= security is nowhere near as true as it once was.

The other issue is that the terms self employed cover a huge range of situations - some examples have been posted on this thread. About 16% of the working population are self employed which is a huge growth this century and as we know, and I'm sure MT's review will demonstrate, a growing proportion of these are 'false' often forced self employment.

There are about 5.5 million businesses in the UK and 75% of them have no employees at all. Some will be start ups that hopefully will develop and grow and be able to employ people but there are others that just benefit from favourable tax and NI treatment. I've been self employed with sole trader status for 18 years. The work I do doesn't exist as an 'employed' job. When I set up my business, it was never going to grow, I was never going to employ anyone but I had to have a business name for tax purposes. I can't make a loss - I just have variable earnings year on year. The tax advantages come in the form of certain expenditure that I can set agsinst my income - in my case most noticeably travel to work costs ( if I'm not reimbursed for those). I pay no NI because of my age. However, many of the people I work with in the same world, set up limited companies. If they employ anyone its (usually a wife) who they pay for doing what I do myself, submitting invoices, replying to emails, keeping my diary, booking hotels, travel etc. What they pay this 'PA' then of course reduces their own tax liability. They also at the moment take £5000 dividend tax and NI free out of the business pa and there are a range of other advantages - corporation tax rates rather than income tax rates. A colleague ( who is probably being paid about £75000 ) gleefully explained to me recently how he and his wife ( who of course he 'employs') go out for a £100 per head Christmas meal every year which is then set against tax. I never went down that route as I felt it was wrong - I pay more tax than I would otherwise but I can't accept the limited company route in my field of work as anything other than playing the system to pay less tax. I think this option is far too easily available - it's estimated there are about 600,000 limited companies in this particular situation. These are not the entrepreneurs or risk takers that deserve tax breaks and encouragement.

Anyway, time I signed off this long post - I really just wanted to say, it's all really complicated, it needs reforming in terms of fairness and I'm not holding my breath.

I was listening to something yesterday Jen and, according to the Institute of Financial Studies the drop cost us £10.8bn in foregone Corporation tax.

When you add together what the NHS needs, according to the Kings Fund it's £8bn and what Social Care needs according to the Local Government Associations that is £2.6bn, it comes to £10.6bn. It seems to me we should put Corporation Tax back to where it was in 2010.

Complete political cock-up by Hammond. He's annoyed his own party who claim to support people who try to start businesses. And indeed if you want to encourage entrepreneurs to take the huge risk of self employment you should not go spouting about "fairness". Hammond obviously does not understand the differences between the perks of being in a job in which you are protected by employment legislation and are entitled to all kinds of paid leave etc and the challenge of self employment. The self employed have to earn enough to pay the daily bills, cover any time off for parental leave, holiday, illness etc. Plus their own pension contributions.
It's also a cock-up because the PM has been holding forth about the "just about managing", many of whom are self-employed. He's only aware of the high earning self-employed consultants I conclude.
It's a well deserved own goal.

Matthew Taylor's report is out in the Summer. It's supposed to be examining the gig economy and the way 'new' ways of working are affecting people. May has said she will delay legislation until the report is published. She has hinted that there will be a package of new rights for the self-employed - we'll see!

The argument is that some employers are employing people on a self-employed basis, while in reality the people have targets and are treated in every way as employed. They save money by not having to pay employers' NICs or having to pay holiday, sick or maternity pay. Employees (ahem self-employed) are told they can save money by claiming tax free allowances. There is no doubt that the Treasury loses out from lost NIC revenue.

The idea (allegedly) is to discourage people from accepting this kind of work. However, if that's the case,why not find some way of hitting the employer (Uber, Hermes, etc) rather than the workers?

The other people who take advantage of self-employed status are those who forego salary in favour of taking pay in the form of dividends, on which NICs are not paid. They also pay themselves in the form of pension contributions, especially if their pay would take them into a higher tax bracket. This would have been any easy loophole to stop, but Hammond chose not to plug it.

The government keeps claiming that everybody earning less than £16,000 will pay less, but it really isn't true. I could choose not to pay any NICs, but if I did that, I would lose state pension. Ironically, if I were unemployed I would be credited with NICs and wouldn't have to pay anything. The temptation for many people who only earn a few thousand a year from self-employment is going to be not to declare their earnings at all.

I was on the verge of accepting it until I heard May saying that the government needed money for social care and grammar schools and this was a way of raising some extra cash. I can think of many other ways she could have raised money - especially for grammar schools ! This has been a very big and clumsy hammer to crack a small nut.

I admit I don't really know enough about this to believe that I fully understand the issues here.

It was claimed that NIC contributions for the self-employed were being raised they have benefited unfairly from lower rates that are not available to the employed.

Looked at like that, I wondered if perhaps an increase might be fair. However, if it is true that this measure will not just apply to self-employed people who are in receipt of a very good income but also to those who are only getting by, then I think it is quite wrong. More and more people are becoming self-employed because they couldn't find a job, were being pressurised to do so, and could see no other way out. Whilst self-employment can no doubt be a financially and emotionally rewarding state, it can also be one of great stress and struggle, particularly as more and more people are entering the self-employment market and competing for customers. I know there are some self-employed people on Gransnet who work very hard, create employment for other people and who are constantly struggling financially.

I think it may well be another case of "divide and rule" - employed people being encouraged to believe that the self-employed are all unfairly advantaged and that they are all doing very well financially. No doubt some are and it might seem fair that they should pay something more in line with what employed people pay, but to put further financial pressure on one-person or small enterprises seems wrong to me.

Anyway, it's caused a bit of a furore, and from people who are generally the Conservative Party's greatest supporters, so perhaps there will be some back tracking.

£5 billion a year, according to the FT.

I should have asked - do you know how much the reduction cost us in foregone tax?

What does that relate to Jane? If you mean my post about taking the Corporation Tax back to 2010 there is no evidence whatsoever that employment would go down - that's another Tory rumour. Since 2010 Corporation tax has been cut from 28% to 20% and 28% was already very low. In Germany (where Corporation Tax is 33%), in the period between 2010 and 2015 they created more jobs than the UK did. There is no direct connection between increased Corporation Tax and reduction in jobs.

But if businesses do better they employ more people who then pay taxes and reduce reliance on benefits.

I keep saying this but I think it is important; the government has made choices, it is not about the need for austerity. If they simply put Corporation Tax back to where it was in 2010 - 28% - we could put the necessary funds into the NHS and pay what we need to in order to put care back on an even keel. The government chose to reduce Corporation Tax and let the NHS and Care go hang!

WW what makes you think this isn't a goer? I thought it had only been delayed.

Gracesgran, only 15% of those in work are self-employed. That's why not many are objecting.
It's fair enough to object if a manifesto promise was broken, particularly if most of that 15% voted Tory because of the fact that their NICs were lower than employee NICs.

Stop the corporation tax breaks to businesses? We already have the lowest in the G7. We are already a tax haven as far as most of the world is concerned. Why does it need to go down to 17%.
Have heard it said that it could make many self-employed go corporate. If they want a level playing field, corporation tax should be the same level as PAYE.

Sounds as if this isn't a goer. So not sure what he's going to do to raise the 2bn?

I must be missing something because I didn't get the impression people were objecting that much - other than the press.

NIC Looks like Hammonds pasty tax.

fullfact.org/economy/did-conservatives-break-manifesto-promise-national-insurance/

Full Fact says they definitely broke the pledge.

Do you remember which programme he was on dd?

May/Hammond may have played it well. Now everyone will be used to the idea by the autumn. I did see someone talking about it on the Daily Politics and he was asked about rolling the NI into the general tax system. Apparently Osborne thought he would loose the over 65 vote if he did that.

Off to the blog - thanks.

Just been listening to Matthew Taylor on the radio. He's the only person I've heard who has made sense about NICs. His review of new working practices is out in the Autumn and it appears that NICs will be part of that review.

May has now decided to delay legislation for the NIC increases until the review is published. Maybe she should have waited in the first placed rather than thinking they could have been sneaked into the budget.

I must admit that I find it quite sad that the tabloids made such a big fuss about them (probably reflecting their readership) but have remained almost silent about cuts to disability benefits, housing benefit, etc.

This is Matthew Taylor's blog:

www.thersa.org/discover/publications-and-articles/matthew-taylor-blog

He's made some interesting posts about new ways of working, including the effects of the 4th IR.

I realise you own the business Gill but it is a taxable entity (as opposed to your tax)surely. I would have thought the business pays the SSP rather than it coming from your own pocket Gill.

I am the business GracesGranMk2.

Surely the business pays the SSP Gill. Could the business choose to pay you too if you were sick?

I wonder how many of the supporters of this policy change it is only right that the SE pay the same as employees, and besides most SE fiddle their tax.....pay their plumbers/builders/cleaners cash to save VAT?

As the director of a micro business, I only accept online payments and cheques, as a vat registered business and an honest person I am astounded by the number of potential clients who ask for a discount for cash. I point out, not always politely, that the VAT is not my money, and could they explain to me why I should commit a crime, a fraud, just to save them 20%?

Also, as an employer, I pay SSP to my employees, and this is not reimbursed or offfset against NIC payments, I cannot pay it to myself, so fail to see why I should pay the same NIC.

I wouldn't mind betting Nick Robinson is paid on a freelance basis.

PS. I've worked with a number of French colleagues who have had difficulty pronouncing 'worksheet'. The response from pupils has often been "Yeah! We think it's sh*t too!"

www.indy100.com/article/nick-robinson-accidentally-philip-hammond-rude-word-spreadsheet-phill-7620121

Did anyone hear this this morning?