Empowering the Freelance Economy

Self-employed and scared: millions in the UK are on brink of ruin and policy is at the heart of it

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Conditions for economic growth, are ‘not a mystery’, says the Institute of Economic Affairs (IEA) in an open letter to Chancellor Rishi Sunak. But if current policies continue and the Chancellor goes into austerity mode, ignores the lessons of the past and excludes and clips the wings of the self-employed – what chance does the UK have in making an economic comeback?

Hindsight is a beautiful thing. History is equally a treasure trove of lessons learned, so why ignore it? A new briefing paper and accompanying open letter from the Institute of Economic Affairs to Chancellor Rishi Sunak poses such a question. The IEA’s efforts highlight the conditions that prevailed during recent periods of economic growth.

With talk of ‘medium-term’ tax hikes and budget cuts will the Chancellor’s policies be creative enough to encourage – rather than deplete – economic growth and job creation through self-employment when mass redundancies are imminent?

“Governments have choices. This government may not choose to adopt some or any of these successful policies. At the very least, this evidence should weigh heavily on any decision-making,” says a statement from the IEA’s open letter that includes 30 signatories as diverse as the Chief Executive of Wag TV, Martin Durkin; Dan Hannan, Former MEP; Tim Martin, Founder of Wetherspoons; to Alison Cork, home and interiors guru and founder of retail site, Alison at Home.

History lessons

The letter has come out less than a fortnight after the Chancellor announced his “Winter Economy Plan” and delivered his speech at Conservative Party Conference.

According to the IEA, conditions for growth are ‘not a mystery’ since they have been put in practice in the UK in the recent past; the period from 1993-2003 was one of high productivity growth, national income growth and growth in government revenues, especially compared with recent times, according to the IEA’s research.

“The policies that spawned these successful periods have a proven track record and hence can form a practical basis for policies that could be pursued now to boost our economic recovery,” writes the IEA.

Neil Record, Chairman of the Institute of Economic Affairs, used historical data and analysis to identify those policies that could maximise government revenue growth as the UK emerges from the Coronavirus crisis.

Rather than speculate on approaches that HM Treasury could use to tackle the dual issues of highly-stressed public sector finances and a lack of labour productivity growth leading to stagnant real wages and living standards, the author has concentrated on the past four decades and has identified the best 10 year periods within them.

The period from 1993-2003 is Record’s decade of choice, with his paper, “The Chancellor’s Post-Pandemic Choices” making the case for an economic policy framework more aligned with this period.

The report states, “Even in the good times, our tax system has been too complex, too distortionary, and not sufficiently investment-friendly. We need major tax simplification, and a shift in the burden of taxation from more distortionary to less distortionary taxes.”

Policy for growth

The report does not mince words, “Further, we must unleash the animal spirits of the UK population by unburdening them from undue regulatory interference. Ultimately, clawing ourselves out of the Covid-induced downturn requires learning from best practice – not just from the UK’s recent past but from elsewhere across the globe.”

The group of over 30 signatories – economists, academics, business people and politicians – that have backed the open letter to the Chancellor of the Exchequer spotlights these policies as a route to economic growth:

  • A top rate of income tax of 40%
  • Corporation tax ranging from 33% to 19%, falling throughout the period
  • Highest rate of Stamp Duty on residential property of no more than 4%
  • VAT rate of 17.5%
  • Capital Gains Tax rate at the same as income tax rate, but Taper Relief (from 1998-99) reducing the rate on shares by up to 75% (i.e. giving a top rate of 10%)
  • A light regulatory burden on all productive sectors: less financial regulation, less labour market regulation, more targeted health and safety regulation, less energy sector regulation.

“Economists have had a poor recent track record of forecasting,” says Record. “So rather than building yet another model of the economy to help guide advice to the Chancellor, I have looked back at periods of UK economic success and growth within the past 40 years.”

Record says that he has analysed the taxation, fiscal and regulatory policies that helped create those successful periods.

“If decisions made now can recreate that success, then despite the terrible damage wrought on the economy by Covid-19, the future can be bright,” he says.

The ‘forgotten’ and the free market economy

It is worth noting that the creation of the new Job Support Scheme, which will replace the furlough scheme, is only for people in “viable” jobs.

“Our Kickstart Scheme will help hundreds of thousands of young people into good quality work, ” Sunak said in his speech at the Conservative Party Conference this week.

Sunak also said the Party “will help small businesses adapt” and has done so by delivering Government-backed loans, tax deferrals and tax cuts.

No one is denying that, but turning a blind eye to more than three million of your taxpaying citizens – that’s larger than the 2.7 million population of Manchester – could be construed as careless economic policy. It’s practically handing over the tools and materials to build an even longer unemployment queue when instead this group could be building up the economy.

“In a free market economy it is the entrepreneur, who is critical,” said Sunak. “And we will make it easier for those with the ambition and appetite to take risks and be bold, to do what they do best and create jobs and growth.”

But Sunak’s talk of entrepreneurial ‘appetite’ has very different connotations for the 3 million excluded self-employed entrepreneurs that have not been included in any support. Nor does it quell any fears that hiring companies will either give some of these freelancers ultimatums come April 2021 when IR35 comes into force or exclude them completely leaving many highly skilled freelancers unemployable or vulnerable to low paying gig job sites and/or costly umbrella company fees.

Many of the UK’s self-employed have no choice but to work remotely due to their location from their clients, personal circumstances (i.e., disability) or having to juggle a business and family under the constraints of 9-3 school hours. That is why the Workstyle movement started in the first place.

Freelancers, new starters and some women on maternity leave have not had ‘one penny piece’ from the government in six months, according to the SNP’s economic spokeswoman Alison Thewliss, who said to the Chancellor in Parliament as she claimed the latest support package still excludes this group of people.

“There’s nothing here, nothing whatsoever, for those that have been excluded from existing support schemes,” she said.

“The freelancers, the ‘forgotten limited’, the PAYE, the new starters, the women on maternity, all of those who have not one penny piece from this government for six months. He cannot say he does not know this is a problem although he still refuses to meet with them,” said Thewliss.

Thewliss is among a handful of MPs looking out for the 3 million excluded self-employed. To hear her speech, click on this Twitter video.

Responding to the Chancellor of the Exchequer Rishi Sunak’s speech to the Conservative Party Conference 2020, Federation of Small Businesses (FSB) National Chair Mike Cherry, said: “It remains absolutely critical that measures are announced to help those left out by these various packages, in particular, the newly self-employed and company directors. These individuals have been left with little or no income support for much of the year with little prospect in sight of a rebounding economy in the immediate future, the Government must address this area sooner rather than later.”

He added: “And with local lockdowns of varying degrees taking part right across the UK, it is vital that viable small firms impacted by curtailed footfall, curfews and forced closures are given the support they need to reopen again once measures are lifted.”

Future generations

Sunak says in his speech that the Conservative Party has a “sacred responsibility to future generations to leave the public finances strong,” but his “careful management” of the economy does not figure in millions of taxpayers, but rather continues with policies that are considered generalised tax grabs on the self-employed, such as IR35. Are his actions, spurring joblessness and financial ruin for these excluded entrepreneurs and their children – ‘the future generations’, he talks of? Surely, the Chancellor understands how generational wealth (and poverty) works.

Responding to the Prime Minister’s speech at the virtual Conservative Party Conference, IEA Director General Mark Littlewood said, “There was some sound free market rhetoric in the Prime Minister’s speech but little in the way of concrete free market policy.”

“Faced with the prospect of millions of job losses, the government needs to commit to reducing the tax burden, cutting red tape for businesses, and reducing the cost of employment,” said Littlewood.

“While the Prime Minister indicated that the current level of public spending is too high (forecast to be upwards of 50 per cent of GDP this year), he has failed to set a specific target for reducing this figure. Getting government expenditure down to around 30 per cent of GDP would allow the private sector to flourish with a lower tax burden,” he said.

Wings clipped?

The Chancellor says that the “Conservative government will always balance the books,” but will this government focus on big business and clip the wings of the self-employed through its policies, rather than giving them the temporary support they need to create economic growth rather than fall into ruin?

If you or someone you know is self-employed and among the excluded and would like to have a concern or story heard, contact us on editor@freelanceinformer.com

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