Being Your Own Boss: Should the Government Care?

Abstract

Self-employed workers have lost out during the pandemic, and state assistance has been poorly targeted, with over half of the self-employed receiving no help.The Chancellor has hinted that, in return for government assistance, the self-employed may be taxed more heavily in the future. The tax authorities have long been concerned that the self-employed do not pay enough income tax and national insurance contributions. Thus, the conditions for obtaining self-employment status have already been considerably tightened. Conversely, trade unions have argued that the self-employed are a disadvantaged group, which misses out on many welfare benefits and employment rights. These two approaches suggest a pincer movement towards giving the self-employed greater entitlements but at the cost of greater taxation and tighter regulation. The self-employed are an extremely heterogeneous group. The danger is that new one-size-fits-all legislation will deter many from entering self-employment and drive activities into the informal economy. There are no strong public policy grounds for subsidising self-employment, but there are no grounds for deterring it either. In the current climate, it could be unwise to penalise the self-employed unnecessarily. Changes to their status could take place in the context of a long-overdue merger between national insurance and income tax, which could enable the public to see clearly how much the government takes from their pay.