More people in the United Kingdom are classifying themselves as self-employed than at any time since records began, now accounting for over 15 per cent of the workforce. The rising number of self-employed workers has been a major driver of recent employment growth. In many ways this is a symptom of a changing economy, linked to the end of the historic job-for-life model and an increasingly diverse employment base.
When self-employment is genuine and voluntary it can be a great thing. It allows those with great business ideas and entrepreneurial flair to chart their own course, enables people to pursue their passions, or can offer flexibility in working conditions to fit around caring responsibilities or other part-time work. Government should welcome and support the growth of genuine self-employment.
But there is a darker side to the rising numbers of employees classified as self-employed – the growth of bogus self-employment, which robs working people of pay and rights, while providing a tax loophole for unscrupulous employers and payroll companies. If you are one of the hundreds of thousands of people desperately looking for work, signing up with a payroll company can seem like a solution, with an offer of regular work for a third party. Such companies will insist that those signing up register as self-employed even though they will in practice be working for a single company.
Through this arrangement the company contracting the work avoids paying national insurance contributions for the worker, while the employees find themselves without most of the rights we take for granted, including not being sacked without reason, paid sick leave and holiday pay. This is an employment model that denies workers their rights and denies the country tax revenue so urgently needed to secure the future of our public services and cut the deficit.
There are a number of sectors and trades where self-employment is endemic – and these are too often areas where bogus self-employment is also rife. Construction, in particular, is a bastion of self-employment, a situation which has worked well for some employees, but Ucatt now estimates that more than half of those working across the industry are in bogus self-employment contracts. And, as genuine self-employment becomes increasingly common across a wide range of industries, so it seems likely that a growth in bogus self-employment will occur in parallel.
Labour has a proud history of increasing and protecting workers’ rights. If the next Labour government is to be true to that tradition it is clear that it must tackle the growing use of self-employed status to strip employees of some of their most basic rights. Action on this front will also be essential if Labour is to realise Ed Miliband’s pledge, made at this year’s party conference, to ensure that the self-employed enjoy equal rights at work.
So it is very welcome that Rachel Reeves has set out plans to crack down on bogus self-employment, creating a situation that would make it illegal for individuals to have self-employed status if they meet criteria ‘that most people would regard as obvious signs that they are employees’. This must be a priority for the next Labour government, while ensuring that measures do not accidentally penalise the genuinely self-employed. But Labour needs to go further still – we are, after all, talking about payroll companies and employers who are unlikely to be deterred by a regulatory framework. A Labour government needs to make it clear that falsely employing people under self-employed status can lead to criminal prosecutions, to requirements to backdate payments of national insurance and pension contributions, and that major repeat offenders could face being put out of business. We have a window of opportunity – and possibly only a brief one – to prevent bogus self-employment becoming an unethical fixture of Britain’s economy. Labour must seize it.
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John Woodcock MP is chair of Progress. He tweets @JWoodcockMP
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