Protecting the self-employed

Self-employment covers a range of circumstances – not just independent operation, but freelancing, contract work and the evasion of labour rights by employers. It does reflect a change in the character of the labour market, and that in turn presents challenges for the design of benefits. Figures from the TUC show that the rise in ‘jobs’ is actually a rise in self-employment. The numbers of people in employment fell from 2008 to 2010, but have nearly recovered 2008 levels; the numbers of self employed have increased, and 40% of new jobs since 2010 have been in self-employment.

There are three main ways to provide social protection for people who are self-employed. The first is social insurance. The Beveridge scheme largely excluded the position of self-employed people, but it was designed to respond to part-time, casual and flexible working. Unemployment Benefit used to pay people for days not worked – anyone who earned more than £2 as day lost the benefit for that day. The difficulty of extending that kind of provision to self-employed people is that their time cannot be allocated in that way; it is not practical to treat someone who is marketing, training, ordering supplies or preparing materials as if they were unemployed.

The second is the approach in Tax Credits and Universal Credit, which is to supplement income. Tax Credits have had some odd effects; a tradesman who buys a vehicle and reports a loss can get more benefit than someone with lower takings who could not afford to buy a vehicle. The White Paper argued that “Universal Credit will match more closely the structure of today’s labour market, where part time jobs and flexible working are much more common than they once were.” UC is supposed to match benefits to income on a monthly basis. The Institute of Chartered Accountants thinks this is impractical – self-employed people often don’t know what their net income is, and may not have the resources to work it out. The government has decided that self-employed people will be treated as if they have a full-time minimum wage – which blows a hole in the side of any attempt to match support sensitively to income.

The third option is to try to stabilise income, rather than to respond to it. There are not enough benefits that are paid like Child Benefit at a steady rate, regardless of changes in circumstances. If the government is serious about responding to the demands of a flexible labour market, there need to be more.

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