Self-employed workers excluded from working people definition face financial strain, pension problems and jitters about upcoming Autumn Budget
If you work for a living, you’re a working person, right?
It shouldn’t matter whether you get your income from an employer’s payroll or from clients who pay your invoices. Yet government language consistently treats the self-employed as if they’re somehow less deserving of their attention from “working people”.
Take the term “self-employed”, for example, a status enjoyed by 4.3 million people with the right to vote. The term is self-explanatory, isn’t it?
Then, why is it that these hardworking people are excluded when politicians talk about “working people” – and it isn’t just annoying – it’s counterproductive to the economy. It can lead to policies which trigger thousands of solo self-employed businesses closing up shop or never getting launched in the first place.
Why do modern work arrangements have to be so complicated?
The problem gets even messier when you look at how people actually work today. Take umbrella contractors. They get payslips just like employees, with tax taken off through PAYE. But they’re still essentially self-employed, finding their own work and bearing risks.
Are they “working people” because they get a payslip? Or are they excluded because they’re contractors? This confusion shows just how outdated government policy thinking about work has become.
As the Association of Independent Professionals and the Self-Employed has pointed out, this ambiguity creates uncertainty that ripples through tax policy, support systems and the economy.
IPSE’s Fred Hicks is calling on the government to clarify who counts as a ‘working person’ – as growing ambiguity leaves the self-employed increasingly uneasy about the Autumn Budget:
Sir Keir Starmer has always been clear that his party is the party of working people. And upon entering Downing Street, he was equally clear that his government would not raise taxes for working people. But one thing isn’t clear – what exactly is a ‘working person’ in government’s eyes?
Hicks said in a company blog post that he dismissed confusion over this term as being overplayed for political reasons. However, admits, with each new definition offered by ministers in the months since, “that clarity of message has been overshadowed by ambiguity.”
Following a minister’s remarks during the PM’s question time that a working person is someone who “gets a payslip”, Hicks said this way of thinking has led to more unease among the self-employed.
“If the Prime Minister doesn’t have plans to raise taxes on the self-employed, he urgently needs to confront that head-on,” said Hicks.
How self-employed exclusion hurts households
When the self-employed are written out of “working people” policies, they face unfair financial pressures. Unlike employees, they understand that they don’t get employer pension contributions or employer-funded sick pay or timely pay. Yet once they hit a certain amount of revenue often pay the same taxes – sometimes more – without getting the same consideration on policy making.
This can hit umbrella contractors particularly hard. Their payslips make them look like employees, but they’re denied employee benefits whilst still carrying self-employment risks. They pay income tax and National Insurance like everyone else, but get none of the job security or workplace protections. Umbrella companies argue their margins just don’t allow for such luxuries.
The pension crisis facing self-employed workers
Nowhere is this exclusion more damaging than when it comes to retirement planning. Building a decent pension pot is already tough for the self-employed, who don’t benefit from the same employer contributions or automatic enrolment schemes.
For umbrella contractors, it’s particularly galling. They see “employer pension contributions” on their payslips, but this money is actually coming from their contracted rates – there’s no genuine employer contribution like a permanent employee would get. They experience the illusion of employee benefits whilst paying the full cost themselves.
That’s because the contractor pays all costs because the “employer” pension contribution is taken from the overall assignment rate (the pot of money the contractor generated), the contractor is effectively funding both the employee and employer portions of their pension. This is a difference from a permanent employee, where the employer pays their contributions on top of the employee’s salary.
Umbrella companies are legally required to provide a workplace pension scheme and make an employer contribution under auto-enrolment rules. However, they often do this by deducting the cost from the contractor’s total earnings, not by contributing their own funds.
Stifling Britain’s entrepreneurial spirit
Excluding the self-employed from “working people” sends a terrible message to potential entrepreneurs: your contribution doesn’t matter. This undermines the entrepreneurial spirit that Britain desperately needs.
However, there are some positive signs. The government’s recent Small Business Plan shows they understand the sector’s importance. Prime Minister Keir Starmer acknowledged: “From builders and electricians to freelance designers and manufacturers—too many hardworking people are being forced to spend precious hours chasing payments instead of doing what they do best – growing their businesses.”
The plan tackles late payments – a massive problem that “costs the UK economy £11bn per year and closes down 38 UK businesses every day.” It includes the most significant legislative reforms in 25 years, with the UK set to have “the toughest late payments laws in the G7.”
Business Secretary Jonathan Reynolds backed this up, saying the plan would help “unleash their full potential by giving them back time and money to do what they do best – growing our local economies.”
Read the FI’s full report on this and how freelancers can claw back hundreds of pounds each year by no longer offering free lines of credit to their clients.
Small yet mighty
The facts speak for themselves about how important the self-employed sector really is. Small and medium businesses employ 60% of Britain’s workforce and generate £2.8 trillion in turnover. These aren’t bit players.
The government’s own analysis shows that “accelerating SME growth by just 1 percentage point per year, could deliver £320bn to the UK economy by 2030.” But this potential can only be unlocked if the self-employed get the recognition and support they deserve.
The self-employed are working people who’ve organised their working lives outside traditional employment structures. This includes everyone from market traders to highly skilled contractors working through umbrella companies.
Policies need to recognise that 21st-century work takes many forms. Whether someone works for a multinational or runs a one-person consultancy, they’re contributing to the economy and deserve proper recognition.
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