Freeports are a victory for pro-enterprise thinking – let’s do the same for self-employment

By Derek Cribb, CEO IPSE

With the recent confirmation of two new ‘freeport’ economic zones in Liverpool and East Anglia, it’s worth reflecting on what this approach to driving economic growth can teach us about other areas of policy.

The proposed benefits of these lower tax, lighter regulation zones are to attract investment, create jobs and generate wealth, all of which is to be welcomed and is a much-needed reminder that government is capable of backing positive, pro-business measures. But this makes it all the more confusing – and disappointing – that at every opportunity, government has chosen to do the exact opposite for the UK’s hardworking self-employed sector.

Backing self-employment requires freeport-like thinking

Most of us know somebody who works for themselves in some capacity – whether they are an artist, engineer, hairdresser, IT expert or SEO specialist – the self-employed are ubiquitous, talented and diverse. Yet they are too often overlooked by policymaking, or worse still, viewed with an apparent scepticism and suspicion that is not replicated in other areas of business.

Over recent years we have seen the exact opposite of the “lower tax, lighter regulation” approach to targeted stimulation key sectors that the government is, rightly, so willing to use elsewhere. Measures such as the notoriously flawed ‘IR35’ rules are a prime example of this. Deployed as an anti-tax avoidance measure, they too often result in direct attacks on the ability of incorporated freelancers to work for themselves, forcing them to adopt a contrived form of quasi-employment with their clients.

The businesses that hire them suffer too, as recent reforms to the rules (which were scrapped as part of Kwasi Kwarteng’s mini-budget but reinstated by a screeching U-turn ) require the hirer to make complex determinations about the freelancer’s tax status, leaving them on the hook for a hefty tax bill if HMRC disagree with their decision years later.

When freelancers succeed, so do their clients

As we warned would happen ahead of the rollout of the reforms, a chilling effect has settled in across the world of contracting. Businesses are now often reluctant to engage genuine contractors amidst the uncertainty whilst contractors themselves are leaving the market to become employees, retiring early or seeking work with overseas clients. This is depriving UK businesses of the knowledge and expertise that can only be found in the ranks of our freelance population. Some of those businesses will be the very same as those looking to recruit freelance talent to help deliver new projects in our growing network of freeports.

We know that businesses with money to spend see freelancers and contractors as a great way to deliver a return on investments in new projects. In an IPSE survey of medium and large-sized businesses , three in four (76%) reported that freelancers are a valuable resource for their business and just under half (49%) said they could not achieve the same results without them. Yet one in three (35%) said that IR35 rules made it more difficult to attract the freelance talent they need.

The previous Chancellor could also see that the IR35 reforms were disrupting free enterprise, causing “unnecessary complexity” for businesses. But with the reforms reinstated amid the much bigger backdrop of the mini-budget reversal, we now find ourselves in a peculiar situation where government has acknowledged IR35’s flaws but nonetheless continues to enforce it.

Unlocking the full potential of the freelance sector

A genuinely pro-business government should back the self-employed and the clients they work with, not view their engagements with immediate suspicion. We need to move towards a situation where the very best of freelancing – which can help de-risk business investments in new projects, provide specialised skills on a flexible basis and provide a household with an income – is encouraged to thrive without the debilitating anxiety of a retrospective HMRC challenge putting life-long plans for homes and retirement in jeopardy.

Bold action on IR35 would be a good place to start. Government should review the overarching IR35 policy, with a view to replacing it with something simpler and fairer that stimulates the movement of key resources to the areas of British industry when and where it is most needed. With the same spirit of ideas and energy that we see in government’s support for freeports, I believe a prosperous future for self-employment is possible – but it will require government to decide whether this is something it really wants.

Derek Cribb is Chief Executive of IPSE (the Association of Independent Professionals and the Self-Employed)