March 9, 2017 / 1:40 PM / 5 months ago

Britain's tax raid on gig economy misses the mark

3 Min Read

A Deliveroo worker loads his bicycle after making a delivery in London, Britain August 15, 2016.Neil Hall

LONDON (Reuters Breakingviews) - Who picks up the tab for society’s shift toward looser work arrangements? New measures in Wednesday’s UK budget have an initial answer: the self-employed, who will hand over a greater share of their income to the taxman. It’s understandable, but only partially helps.

The issue for Finance Minister Philip Hammond is that around 40 percent of the 2 million-plus jobs created since early 2008 are self-employed ones. Those with profits over 8,060 pounds a year pay so-called national insurance at a rate of 9 percent, instead of the 12 percent deducted from an employee’s pay. Worse, self-employed workers don’t have employers able to contribute another 13.8 percent on top. Along with an accompanying trend for workers to incorporate as companies, this could blow a 3.5 billion pound hole in the public finances by 2022, according to the Office for Budget Responsibility.

Hammond’s answer is to gradually increase the self-employed rate to 11 percent in 2019. To the extent that this means the better-paid members of the “gig economy”, such as freelance consultants and accountants, shoulder this burden this is reasonable, especially given the self-employed now have better state pension entitlements. But it also acts as a disincentive for entrepreneurs, as well as hampering the gig economy’s poorer constituents.

In any case, hitting the employee is less important than the employer. A solution, according to the Resolution Foundation, would be to find a way to tax the contractors that act as enablers of the gig economy - one option could be to impose a levy on the use of self-employed labour. With corporation tax set to fall to 17 percent by 2020, companies benefiting from the UK’s hyper-flexible workers could theoretically stump up more.

The problem is collection. It’s not clear how, for example, to round up duties in the case of a self-employed plumber under contract for several different businesses. But the wider labour market shift isn’t going away: by the end of 2016 the number of people on zero-hours contracts alone hit a record high of 910,000. If Hammond wants to decisively tackle the issue, he will need to solve the real problem.

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