The battle for the self-employed

The Labour party has an uneasy relationship with self-employment. Fears of tax evasion by high earners and the exploitation of low earners dominate the party’s discourse. The policy focus is on stamping out abuse, rather than supporting those for whom self-employment is an active choice.

Such an approach will only go so far. The latest Office for National Statistics figures reveal that self-employment is now higher than at any point over past 40 years, accounting for 4.6 million people, or one in seven of United Kingdom workforce. If current trends continue, the self-employed are set to outnumber the public sector workforce. Meanwhile, surveys indicate that for the majority this is a positive choice, rather than a fall-back option for those who cannot find other work.

At present, just one in 10 micro-business owners think Labour has the most pro-business policies, with around half picking the Conservatives. The task for Labour is to fashion an agenda for the growing army of self-employed, which supports those who choose it, alongside protecting those who do not.

This requires thinking hard about how to help people protect their standard of living. The self-employed enjoy only the bare minimum of maternity and paternity leave, for example, making self-employment a difficult choice for would-be parents. Labour should be exploring what a new opt-in ‘maternity/paternity extra’ for the self-employed could look like, with entitlements based on people making contributions in advance. Optional contributions to such a scheme might also be treated as tax deductible, as is the case with income protection products in the private sector.

Pensions are another area ripe for reform, with savings rates dramatically lower for the self-employed. Not only do the self-employed miss out on employer contributions to occupational pensions, worth an average of £90,000 in retirement, but many fear ‘locking money away’ in pensions, when their income is unpredictable. This could be addressed by a new tailored pension scheme for the self-employed, allowing individuals to withdraw a proportion of their pension contributions from the last two years at any time. This would allow more self-employed people to put money aside with confidence, boosting saving in the process.

Meanwhile, Ed Miliband could boost his ‘responsible capitalism’ agenda by helping the smallest businesses stand up to large corporations. In Australia small businesses do not have to resort to expensive legal battles to resolve disputes over contracts or the late payment of invoices. Small Business Commissioners, operating at State level and backed by statutory powers, offer mediation and dispute resolution for a small fee. This model could be replicated in the UK, with little or no cost to the taxpayer, with Local Enterprise Partnerships performing the role, overseen by the Department for Business, Innovation and Skills.

Finally, Labour should be leading the debate on how to prevent large companies from squeezing out freelancers and small and medium-sized enterprises in public procurement. The public sector in the UK spends £230bn each year on goods, services and works to deliver public services, but there are longstanding concerns that procurement rules inadvertently favour large companies over small, by making the bidding process itself too onerous. To open up government procurement to more small businesses, Labour could pledge to publish that any future government would publish tender documents in an editable format. This would allow SMEs and others to suggest revisions that would make the bidding process less onerous. At worst, this would help improve future contracts; at best it could be a mechanism for improving tender documents before final versions are published.

Labour is right to worry about vulnerable workers being treated properly. If people are treated as employees they are entitled to the rights owed to employees. But in an era where more companies are engaging contractors for legitimate reasons, and more people are choosing self-employment for legitimate reasons, this cannot be enough. The challenge is to rethink policy across a range of areas, from labour market regulation to skills and pension policy, infrastructure to government procurement, before a growing portion of the workforce turns its back on the party of labour.

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Duncan O’Leary is research director at Demos. ‘Going it Alone’ is published today by Demos. The report was supported by IPSE

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Photo: Gary Knight

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