Report on gig economy takes aim at ‘myth of self employment’

The incoming government should set out a roadmap for equalising the National Insurance contributions made by employees and the self-employed, according to a new report from the House of Commons Work and Pensions Committee.

The Self-employment and the gig economy report says flexibility is not the preserve of poorly paid, unstable contractors and that profit, not flexibility, is the motive for using self-employed labour in some cases. It says: “Businesses should of course be expected to seek out opportunities and exploit them. It is incumbent on government to close loopholes that incentivise exploitative behaviour by a minority of companies, not least because bogus self-employment passes the burden of safety net support to the welfare state at the same time as reducing tax revenue.”

The report calls cases where companies use self employment to deny workers rights “a myth of self-employment” and says it is difficult for workers to challenge their status in court. It states: “It is clear that current ways of categorising workers are creaking under the weight of the changing economy.”

It says an assumption of the employment status of “worker” by default, rather than “self-employed” by default, would put the onus on companies to provide basic safety net standards of rights and benefits to their workers. Companies who want to deviate from this model “would need to present the case for doing so, in effect placing the burden of proof of employment status on the company,” says the report.

It also talks about the need to support the genuinely self employed better through greater support offered at Job Centre Pluses, including specialist advisers. It adds the Universal Credit should offer appropriate support for the self employed and says the current Minimum Income Floor in UC risks stifling viable new businesses. It calls for an independent review of the MIF “with a view to improving its sensitivity to the realities of self-employment”. Until this is complete, it says, the MIF should not apply to self-employed UC claimants.

“The current rules in universal credit, especially the MIF, take a very broad-brush approach in an attempt to deal with the tiny minority of people who may not be genuinely carrying on self-employment. At the same time as dealing with such people, the rules penalise those who have fluctuating incomes and those who have big business expenses that fall in one month rather than spread over the year – both of which are very common in self-employment. Any review of the MIF must ensure it addresses these problems.

Universal credit reform

Anthony Thomas, chairman of the Low Incomes Tax Reform Group, welcomed the recommendation on Universal Credit. He said: “The current rules in universal credit, especially the MIF, take a very broad-brush approach in an attempt to deal with the tiny minority of people who may not be genuinely carrying on self-employment. At the same time as dealing with such people, the rules penalise those who have fluctuating incomes and those who have big business expenses that fall in one month rather than spread over the year – both of which are very common in self-employment. Any review of the MIF must ensure it addresses these problems.

“Other elements of the system such as monthly assessment periods, the way income is defined and calculated and the burdensome reporting requirements in universal credit totally fails to recognise the realities of self-employed business and must be revised if self-employment is to remain a viable option for low income self-employed claimants.

“All of these rules together create a huge disparity between employed and self-employed claimants – it cannot be right that a self-employed claimant who earns the same amount as an employed claimant over a 12 month period should receive significantly less in universal credit support. For these reasons, the Committee is absolutely right to recommend that the MIF should not be applied to current universal credit claimants until a review can take place.”

The Work and Pensions Committee report also talks about the risks to pensions of the move towards greater self employment and states that current structures are not encouraging sufficient pension saving by the self-employed. It would like to see greater discussion of the possibility of an opt-out system on tax returns to encourage greater contribution to pensions.

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