SMF Report

PRISM sponsored the independent think tank the Social Market Foundation to carry out a review of employment and self-employment in the UK. Looking at how the world of work is changing and how policy should adapt as different forms of employment, self-employment and contracting take shape.

The report was commissioned following PRISMs calls for a strategic review which the government, at that time, failed to act upon. Subsequently Theresa May engaged Mathew Taylor to carry out a review on behalf of the Government into Modern Working Practices.

The SMF report was submitted as evidence to the Taylor Review.

The executive summary of the SMF Review, entitled Rules of Engagement is:

The UK's employment and tax rules no-longer work and they increasingly sit at odds with our diverse and flexible labour market. The consequences are severe:

Many workers miss out on rights and benefits: our research finds that self-employed individuals are half as likely as employees to receive training, less able to build up retirement savings and less likely to take time off sick. At the same time a significant minority of self-employed workers do not enjoy high levels of autonomy at work - and therefore suffer the downsides of fewer protections, rights and benefits but without greater freedom at work.

The rules result in a poor deal for the taxpayer. The Treasury misses out on over £5bn of foregone revenue through different NICs rates for the self-employed, as well as other potential revenues.

Uncertainty about employment status drives inefficiency in the market: injecting costs, whilst providing an opportunity for unscrupulous firms to take a risky approach to compliance thus earning a competitive advantage over compliant firms.

There is now cross-party consensus that such problems must be addressed, although there has been little agreement on how. Our proposed new rules make life fairer for the individual and the taxpayer, whilst providing greater certainty and simplicity to businesses. This report envisages a future where no matter how the work is performed there is greater evenness in tax treatment and in associated rights. As far as possible, we should be moving towards one form of employment.

Closing the tax gap:

From 2018, the Government should introduce a 'Hirer's NICs', which would start at 2% per annum and increase each year until parity is achieved with Employer NICs by 2025. This would overcome the anomaly where organisations engaging self-employed workers are exempt from 13.8% rate of Employer NICs.

Equalising benefits and protections

The Government should design a 'Self-employed Benefits Package'. This should provide Statutory Maternity Pay, contributory JSA and sick leave insurance to workers that save into a private pension scheme. This would be a quid pro quo, with a message from the Government: "If you look after yourself, we will help". Low paid workers could be covered without this requirement.

To help fill the post-Brexit skills gaps, self-employed workers should become eligible for a Training Voucher that can be redeemed if the individual undertakes training. This would match training vouchers provided for apprenticeships.

Organisations should be required to estimate the average hourly equivalent payment to their workers and estimate the number of workers who are paid below the equivalent of the National Living Wage, and to disclose this information. This transparency would put social pressure on organisations to remunerate their workers fairly. This should apply in the first instance to organisations engaging more than 50 workers.

Stronger, clearer rules

To confront exploitation, the Government should establish a new mis-classification rule which would allow individuals to claim that they have been wrongly labelled as self-employed workers where specific conditions are met. These conditions could include working for more than nine months for an organisation and receiving more than three quarters of their income from them.

The Government should carry out a strategic review of the employment status definition with a view to establishing a new legal definition which is simpler and easier to enforce.

More visible policing

The HMRC should make a virtue of visibility: pursuing more cases of non-compliance, and publicising how many firms and individuals have been pursued successfully and the value of the money recovered.

Better evidence and data on self-employment

With self-employment now comprising 15% of all employment, government departments, regulators and national statisticians must collect and analyse a much deeper evidence base as a starting point for more sustainable policy.

Setting an 'Employment Reform Plan'

To provide certainty and sustainability, the Government should introduce a long-term plan setting out the sequencing of different reform measures.

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