Self-employment can drive economic growth, but government must be bold

By Andy Chamberlain , Director of Policy at IPSE - The Self-Employment Association

Economic growth is the biggest and most important challenge facing the government. It’s a good thing, then, that the recently formed Small Business Growth Forum, Chaired by the Small Business Minister Gareth Thomas, held it’s second meeting this week to address the question of how we can encourage more people to start a business. IPSE was at that meeting and here, in a nutshell, is what we said:

• There are 4.4 million self-employed businesses in the UK. There were just over 5 million before the pandemic – there is clearly room for growth
• Not only do the self-employed make a significant direct contribution to the economy (￡366bn) but they provide an invaluable flexible talent resource for other UK businesses, making them more innovative and enabling them to grow
• The government must go on a comms offensive, talking up self-employment, rather than just focusing on ‘bogus self-employment’
• The government should harness the rapid rise in ‘side-hustle’ businesses by increasing the trading allowance from ￡1,000 to ￡5,000 a year

Anti-business policies are not conducive to growth

The trading allowance isn’t the only fiscal lever the government could pull. There are policies in place right now (IR35, Managed Service Company rules) which actively seek to dampen business growth and which have forced many viable businesses to close. If the government were to be really bold, it would address these failings head on too. The question is, will it? Will the government actually act on this? How serious is it about growing the economy through enterprise?

Economic growth is always of central importance to all governments. There are often times, though, when it’s somewhat taken for granted. Times when it’s not given prominence in political discourse, when other issues become the cause de jour. ‘Get Brexit Done’, ‘The Big Society’, ‘Education, Education, Education’, were all at one times the big ticket items. Right now it’s ‘the Growth Agenda’. This government will be judged on whether it delivered economic growth, more than on any other issue, and things have gotten off to a bad start.

The Budget put the government under more pressure as it was seen as ‘anti-growth’. Business lashed out. The CBI said it would “squeeze margins and hit profits, which would impact competitiveness, investment, and growth.” Even the Office of Budget Responsibility downgraded it’s growth forecast following the Budget. Big firms are cutting back on hiring. Investors have baulked at the stagnant economy leading to an increase in government borrowing costs. The pound has weakened.

The only palatable solution to these problems is economic growth and that is why the government is so desperate to find it. This week, somewhat out of the blue, the Chancellor announced that the third runway at Heathrow is back on the (Cabinet) table. The third runway is not universally supported but it’s not an unreasonable proposal in the context of growth. If Britain wants to have a growing economy it must project a growth mindset and major infrastructure investment is a fairly well tried and tested means to do that. But it’s a long term project, it will take years to deliver, and while the promise of a new runway may stimulate some growth in the short term, it’s unlikely to give business the quick fix it needs to get the economy firing again.

The MSC saga is case in point

What will help though, instantly, is for people to feel empowered to start a business, to feel confident that they are supported by government and that they won’t be preyed upon by a tax authority that views them with suspicion. Earlier this week, IPSE gathered together a group of its members who have been plunged into the depths of a Managed Service Company investigation. It’s been going on for at least three years (for some it’s six years) and the end is not in sight. HMRC, it seems (although it’s actually not easy to tell) does not like the way these businesses interacted with their accountants, so they’ve hit them with big tax bills and a huge legal headache. It should be obvious to all concerned that this is not good for growth, yet here we are.

The MSC saga is just one issue effecting a relatively small population, but it’s indicative of the overall sense of gloom around business at the moment. Why would anyone want to start a business in the UK when things like this can happen when you least expect it? Of course, if businesses have avoided tax they should expect to be investigated, but in this case there has been no wilful avoidance, and in my opinion, no avoidance full-stop. If the government thinks differently, it should clearly articulate why and deal with it quickly.

The government needs to change it’s whole approach to our smallest businesses. If it really does want to see them flourish, it should first of all say so. Then it should provide a small incentive to get the sector growing – increasing the trading allowance would be one way to do this. Then it should give a guarantee to those businesses that it will not subject them to years-long investigations, using legislation that no-one can explain. If it does this, the growth will come, and quickly, but it will require bold action from the government.