Empowering the Freelance Economy

Lib Dems may have sealed 4.2 million votes overnight

Ed Davey and the Lib Dems are speaking the language of the self-employed.
3 2,000

The Liberal Democrats Manifesto released this week pledges to end retrospective tax changes such as the loan charge brought in by the Conservatives and review the Government’s off-payroll working IR35 reforms to ensure self-employed people are treated fairly. Tax, personal finance and contractor insurance experts give their take on the proposals and how they stack up to other Party proposals.

The launch of the Liberal Democrat manifesto has drawn “lines in the sand” for the other major political parties to measure themselves against in the run-up to the general election, according to one tax and self-employment expert. 

In the manifesto, the Liberal Democrats have also committed to tackling late payments, by requiring all government agencies, contractors and companies with more than 250 employees to sign up to the prompt payment code.

Modernising employment rights to make them fit for the age of the ‘gig economy’, including establishing a new ‘dependent contractor’ employment status in between employment and self-employment.

 Reviewing the tax and National Insurance status of employees, dependent contractors and freelancers to ensure fair and comparable treatment.

 Responding to the launch of the Liberal Democrat manifesto, Qdos CEO, Seb Maley, said: 

“The Liberal Democrats have thrown down the gauntlet to the other Parties, with a manifesto that will resonate with many freelancers, contractors and self-employed workers.

“From committing to ending the Loan Charge to action on late payments and a much-needed review of the off-payroll reforms, the Lib Dems are positioning themselves well to win over the support of the UK’s 4.2m self-employed and flexible workers. 

“With lines in the sand now drawn, it will be interesting to see what the Labour and Conservative parties are willing to do to try and win votes from this crucial set of voters.”

Sir Davey and his commitment to freelancers

Commenting, Dave Chaplin, CEO and founder of IR35 compliance firm IR35 Shield said: “The Liberal Democrats and in particular their leader, Sir Ed Davey, has always understood the importance of the flexible workforce and supported freelancers. The commitment to a review of the off-payroll working reforms is certainly welcome, as is the focus on ensuring the self-employed are being treated fairly. The IR35 Reforms are proving to be a disaster and the 25 year-old HMRC idea of “deemed employment” which simply does not work.

“Self-employed people are the backbone of our economy,” continues Chaplin, “but poor Government policy-making has let them down and damaged their livelihoods. It’s time we had a new Government that champions the self-employed rather than punishing them. Let’s hope July 4th is a turning point.”

However, as much as the announcements are “feel good” vibes, Dan Neidle, founder of think tank Tax Policy Associates, questions the feasibility of the Lib Dem’s plans as he expressed in a report this week. He has concerns that anyone caught up in the loan charge could be “let down” if they see no change in their circumstances.

“The loan charge was a controversial anti-avoidance measure that raised about £3.2bn in total. Are the Lib Dems saying they’ll refund that? If they are, why isn’t it in their costings? And if not, what does this proposal mean?

He continues, “If this is just saying ‘we won’t do that again’ then a large number of loan charge taxpayers are going to feel very let down.”

He also argues that while The Tories have said they will raise £6bn by clamping down on avoidance. Labour says they can raise £5bn largely by the same means. The Lib Dems say £7.2bn can be raised doing the same, but no details are provided on how they will do this.

Capital Gains Tax reform under Lib Dems

The Liberal Democrats propose to reform Capital Gains Tax (CGT) by aligning rates with income tax, increasing the tax-free allowance, and introducing inflation adjustments and small business relief.

The Liberal Democrat manifesto pledges also include raising the personal allowance – when the finances allow and reforming capital gains tax by adjusting the rates and basing them solely on capital gains. It says it would raise the CGT allowance to £5,000 on top of a new tax-free allowance for inflation. It has also pledged benefits reform and supporting lower utility bills.

The proposed new CGT rate is 40% for gains of between £50,000 to £100,000, and 45% for gains of over £100,000.

This could raise £5.2 billion, the Lib Dems suggest, but the specifics of the revenue calculations are unclear.

This proposal has merits: closing the gap between income tax and CGT would reduce avoidance tactics, and an inflation allowance is fair. However, a significant issue arises:

“There is a good argument for raising CGT,” says Tax Policy Associate’s Dan Neidle. “Having so great a gap between income and capital gains enables avoidance, as people flip what would otherwise be income (taxed at 39.35% or even 47%) into capital gains (usually taxed at 20%). There is also a good argument for reintroducing an allowance for inflation.”

The sudden change in CGT could trigger a rush of asset sales before the new rates take effect, as people try to lock in lower rates on their existing gains. This echoes the 1988 situation when a similar announcement led to a wave of share sales, says Neidle.

This creates a dilemma – the reform is desirable, but the timing and execution need careful consideration to avoid unintended consequences, he suggests.

How do the Conservatives compare?

The Conservatives have proposed in their manifesto based on certain costings that they will make £6bn of tax cuts in 2024/25, rising to £17bn in 2029/30.

Neidle says the tax cut figures “appear realistic.” However, he questions their affordability.

“But the bigger question is why the [Conservative] manifesto is almost completely silent on tax reform, when so much of the UK tax system is badly broken,” he says.

Continuing, “The manifesto itself falls into a tax trap our broken tax system creates. A proposed change to child benefit tax accidentally creates a new marginal rate of 70% for a parent earning £120k who has three children under 18.

“If the governing party can’t spot these kinds of problems, what chance for the rest of us?”

Neidle’s suggested tax reform strategies include rethinking capital gains tax, which he states “has a rate that’s so low it invites avoidance from people shifting income into capital.”

Such a rate rise may be agreeable by most self-employed if it does not affect them.

At present, Neidle argues that the current tax system in the UK presents a significant disparity:

Income Tax: Someone earning £50,000 annually pays a 40% tax on each additional pound earned (marginal rate), while someone earning £150,000 pays 45%.

Capital Gains Tax: Everyone, regardless of income, pays zero tax on the first £12,300 of profit from investments (capital gains), and only 20% on any amount above that.

This creates a major issue of inequality for several reasons:

Income type bias: Income primarily earned by the wealthy (capital gains) is taxed at a significantly lower rate than income earned through employment, which is the primary income source for the majority of the population.

Concentration of wealth: HMRC data reveals a stark imbalance – over half of all taxable capital gains are concentrated in the hands of just 5,000 individuals. This demonstrates that the current tax system disproportionately benefits a very small segment of society.

Lib Dem: focus on social care

Sarah Coles, head of personal finance at Hargreaves Lansdown highlights what the Liberal Democrat manifesto which includes a £9 billion pledge for the NHS and social care – funded by a tax on banks and a crackdown on avoidance could mean.

“This would include free personal care for everyone who is older or has disabilities, a rise in the minimum wage for carers and overhauling the carers allowance system. Notably, it also promises to introduce a cross-party commission to forge long-term agreement on a sustainable funding approach for social care. For the NHS, it pledges to give everyone the right to see a GP within seven days – or 24 hours for emergencies – plus cancer treatment within two months and better mental healthcare.”

Coles also highlights in a recent report that Labour and the Conservatives have also pledged to address care, and both are expected to include a cap on care costs.

“The current rules on the statute book wouldn’t solve the cost of care at a stroke,” she says. “Anyone with significant assets would still need to pay for at least some of their care before hitting the cap. Even after they hit the cap, they would need to pay something. The maximum possible cost of care would fall dramatically, but not as far as you might think.”

In the leaders’ debate, Coles says Labour confirmed care would be in its manifesto: “It’s expected to commit to minimum standards for care and a pay rise for care workers. A cap on lifetime care costs – possibly £86,000 is expected to be part of longer-term plans.”

In the debate, the Conservatives also confirmed commitment to existing plans to introduce a cap on care costs from October 2025, and a more generous means test of £100,000 to qualify for some help before the cap kicks in (those with less than £20,000 pay nothing).

One might presume the majority of voters would want more tax revenues raised for the NHS, but that doesn’t seem to be the case. Just 25% of people say they’d be more likely to vote for a political party that pledged to raise taxes to pay for the NHS, according to figures from a survey of 2,000 people by Opinium for HL ( April 2024).

“The older people are, the more likely they are to favour this policy – including 30% of retired people,”  says Coles.

  1. J Farrugia says

    Are the minor parties like The Greens or Reform promising changes to IR35 legislation and review of employment status?

    1. Katherine Steiner-Dicks says

      We will be covering other party policies. Reform has mentioned it will be looking at IR35.

      1. Katherine Steiner-Dicks says

        Please see our latest articles on policies and manifestos announced this week by the Labour Party, Conservatives, Reform UK and Lib Dems

Leave A Reply

Your email address will not be published.