The Treasury and the self-employed

The Adam Smith Institute has had many a run-in with the Treasury over the issue of self-employment. Fundamentally we like self-employment and they don't. They deny that, of course, but their actions over the years evince their attitude. They try to have as many as possible classified as employed rather than self-employed, and have moved whole categories of workers from the latter camp into the former.

It is easy to see why they take this position. Tax is easier for them to collect if the employer sends it off under PAYE.  It takes longer for a self-employed person to assess what they owe and to send it off.  Furthermore, the self-employed have legitimate deductions if they, for example, use part of their home as an office.  The Treasury prefers to get its money the easy way, without taking into account the effect it might have on individual lives or on the economy as a whole.

One group of Treasury officials actually suggested that all wages should be paid by employers direct to HMRC, who would then graciously remit to employees the sums they were due to be paid after tax.  It is illustrative of a mindset that sees all money in the UK as belonging to the Treasury except that which they generously hand out to its citizens. They actually refer to not taxing the wealth in our bank accounts as a "tax cost."

We like self-employment because it provides space for independence and for scope for entrepreneurship. It is an engine of growth and it creates jobs. Self-employment has helped prevent our jobless totals from ballooning after the 2007-2008 Financial Crisis. It is, for many, a step on the way to realizing the dream of owning and running their own business.

The Budget of March 2017 was a political miscalculation of the highest order. It broke a clear manifesto commitment and will be thrown at every future promise the Conservatives make. No less importantly, it hits the very people we should be trying to encourage. The self-employed are the aspirational, the upwardly mobile, the people who will create tomorrow's jobs and tomorrow's wealth. For them to face higher National Insurance sends the wrong signal. 

The reduction in tax-free dividend income is a further blow to people setting up and managing their own businesses. These two measures look like Treasury spreadsheet thinking that likes neat rows and columns. The self-employed pay less National Insurance than their employed counterparts, true, but they receive far fewer social benefits in return. 

MPs with political intuition have understood what a political disaster these twin measures would be, and implementation has been delayed pending consultation. It is not too late for the government to listen to objections and abandon the measures. It has happened before.