Labour’s muddle over “working people” and the self-employed

By Joshua Toovey , Senior Research and Policy Officer at IPSE - The Self-Employment Association

Labour promised at the general election not to increase taxes on working people – but the party failed to explicitly define who they are.

The weekend’s political shows finally saw this lack of clarity come to a head. The vague and often contradictory responses of Cabinet minsters arguably left us with more questions than answers.

While the Prime Minister referred to the UK’s working people as anyone who earns a living via a payslip and unable to “write a cheque to get out of difficulties,” Education Secretary, Bridget Phillipson couldn’t confirm if business owners would be considered working people.

Similarly, when asked directly if the self-employed fit this definition, Pat McFadden refused to speculate on the contents of the budget – only further fuelling speculation. And just this morning, Wes Streeting referred to working people as anyone who struggles to get by.

Is it the case they mean anyone struggling to make a living? In that case, self-employed individuals earning under a certain threshold would certainly meet this.

Or is it simply those that solely receive their income from PAYE? In any case, Labour have certainly made a rod for their own back by being so unclear in their manifesto.

Do Labour see the self-employed as working people?

The answer to this question likely starts with Labour’s union roots. The party has, for the most part, considered self-employment as insecure work with few protections from what they see as exploitative practices and a lack of collective bargaining. Indeed, there are parts of the gig economy that most certainly fit this view and some protections here may well be required.

But this overlooks the real story of what is a hugely diverse and dynamic sector of workers. Not only do they add an estimated ￡331 billion in value to the UK’s economy in a single year, but their societal impact – their unique role in local and business communities – is something that employees are overwhelming alive to. ?

Many of these self-employed businesses are at the heart of projects that deliver cutting-edge advancements in science and technology or provide crucial support for the functioning of national infrastructure and government; but we are yet to see a Labour minister make clear that they truly grasp and appreciate this.

The fading attraction of incorporation

How you pay yourself also appears to be a determining factor for whether the manifesto pledge applies to you, with Keir Starmer all but confirming this.

This is especially notable given the gradual erosion of any benefits that come with running an incorporated business in the UK. Successive Conservative governments made it harder to be in business by yourself; implementing the IR35 reforms, reducing the dividend allowance, freezing tax thresholds and increasing corporation tax.

For many owners, this proved to be too much, forcing viable businesses to the wall at a time when we should’ve been encouraging entrepreneurship.

If Labour is serious about its growth agenda, it must embrace the UK’s smallest businesses – and fast. Instead of rowing back on manifesto pledges, the focus must be on encouraging these businesses to thrive.

Economic inactivity must also be a priority for the Chancellor. Enticing the thousands of company directors that have left the labour market due to IR35 to return is fundamental if the UK is to fulfil its economic potential.

Unfortunately, if speculation proves to be correct, it could be another bitter pill to swallow for the UK’s 4.3 million self-employed.

Any hike to Employers’ NI a hit to umbrella workers

If speculation is to be believed, the Chancellor is set to raise Employers’ National Insurance contributions at today's Budget statement.

Some 700,000 umbrella company workers will likely have to cover this cost through a reduction in their take home pay, despite being reassured that their taxes would not be raised in the election campaign.

These individuals, many of whom have been effectively forced into operating through an umbrella company due to IR35, will feel particularly aggrieved that the cost of IR35 is about to increase again.

Our Director of Policy, Andy Chamberlain, spoke to the Telegraph about the likely impact of this measure and how this would breach Labour’s pledge not to raise taxes for ‘working people’.

Join us on Thursday for our analysis of the Budget

Join IPSE’s policy team on Thursday for our reaction to the Budget and insight into how any new measures could impact you, your business, and the wider self-employed sector.