LONDON — The government is considering overhauling tax for the self-employed in Wednesday’s budget, hoping to raise £1 billion ($US1.22 billion) to pay for social care and business rates relief.
Business Insider reported on Saturday that Chancellor Philip Hammond is tipped to reform self-employed tax. Goldman Sachs wrote in a note last week that “there is a reasonable chance the Chancellor changes the tax treatment of self-employment which currently incurs a much lower rate of national insurance contributions than employees.”
The Financial Times on Monday reports that the overhaul is likely, which would increase the amount of National Insurance tax paid by the self-employed to 3p in the pound and bring it in line with what is paid by employees. The Institute for Fiscal Studies recently calculated that the self-employed enjoy a £1,240 tax advantage over employees, calling the current system “costly, inefficient, and unfair.”
The reform looks likely to help fund spending elsewhere in the budget. Hammond has a £27 billion war chest to tackle any Brexit related economic issues but is reluctant to spend any of it before EU exit negotiations have even begun. As a result, the chancellor is aiming for a fiscally neutral budget.
Hammond hopes to raise £1 billion from the National Insurance tax reform and the FT reports that the tax overhaul is part of a wider government review into the so-called “gig economy” — the rising trend for people to do short-term, self-employed work through marketplaces such as Uber and Deliveroo.
The £1 billion will be used to fund social care and business rates relief, according to the FT. This chimes with what analysts at investment banks are predicting.
Funding cuts combined with an ageing population have led the head of the National Care Association to say that the social care sector is “way beyond the crisis point” and more funding for the sector would help combat criticism of the government’s handling of the sector.
The government’s planned reform to the way business rates are calculated has also been criticised, with Labour’s shadow business secretary warning that small businesses face a “cliff edge” that could see them go under once new, higher rates come into effect. Relief for those hardest hit to help them more gradually transition to the new system would be welcomed by the business community.