Maley: government must “wake up” and support self-employment to beat UK cost of living crisis

SPECIAL REPORT

Contractor specialists and even some Tory MPs are calling for more government support when it comes to encouraging people into self-employment to make ends meet and boost the economy

Personal finance and property experts expect the Bank of England to raise interest rates yet again. Despite wage increases in certain sectors, the majority of people in the UK are still struggling due to high inflation on essential items and interest rates. Is greater self-employment the answer to the UK’s economic woes?

• CPI inflation fell to 6.8% in July – down from 7.9% in June and well below the peak of 11.1% in October.
• Core CPI inflation however is stripping out energy, food, alcohol and tobacco) and has remained at 6.9%.
• Personal finance and property investment experts are factoring in another interest rate rise by the Bank of England

Falling inflation hasn’t made a dent yet 

“While falling inflation suggests that we are heading in the right direction, the stark reality is that many people are still struggling to make ends meet. We certainly aren’t out of the woods yet,” says Seb Maley, CEO of contractor insurer Qdos.

Maley is calling on the government to “wake up” to the role that flexible workers can play in kickstarting the economic recovery.

“The consistently high cost of living could see even more people look to boost their income through side hustles and self-employment,” he says. “And the government has a responsibility to support the millions of people working this way in the UK, regardless of whether they do it full or part-time. 

“The fact of the matter is that flexible workers hold the key to kickstarting the economic recovery. They give businesses unrivalled flexibility, helping them to navigate tricky periods and keep costs low. The government would be wise to wake up to this and do more to help this vital cog in the labour market thrive.”

Self-employed losing faith in Conservatives

Last month, Robert Buckland MP, MP for South Swindon and former Lord Chancellor and Secretary of State for Wales was one of a growing number of dissenting Tory voices calling for the reform of IR35.

In response, Dave Chaplin, CEO of IR35 compliance firm IR35 Shield, said at the time: “Here we have one more Tory minister calling for the abolition of a policy that they voted in themselves, against unanimous opposition, only three years ago. It’s embarrassing, and some MPs now recognise that the punitive legislation could be a vote loser in the next election. There are some 4 million self-employed workers in the UK, which is a lot of votes to lose.

“They were warned about the damage that the new version of IR35 would inflict, but those warnings were ignored as the legislation, proposed by Treasury and HMRC, was blindly waived through Parliament by Conservative MPs who’d been subjected to a 3-line whip.”

Government hiring practices prove to be freelancer unfriendly

The UK government and HMRC may not be forcing contractors to become umbrella company employees in 2023, however, they are making it more difficult for contractors to work as self-employed individuals. That’s because they are encouraging them to work through umbrella companies instead. This is due to a number of factors, including:

• The introduction of the IR35 reforms in April 2021, which made it more likely that contractors would be classified as employees for tax purposes
• The increasing popularity of umbrella companies, which offer a number of benefits to contractors, such as simplified payroll, access to holiday pay and sick pay, and protection from employment law claims
• The pressure from HMRC to clamp down on tax avoidance schemes, which often involve contractors working through personal service companies (PSCs)

As a result of these factors, many contractors have little choice to work through umbrella companies if hiring companies advertise predominately for outside IR35 roles, even if they would prefer to be self-employed. This is because umbrella companies offer a number of benefits but that often have a sting in the tail, such as:

• Simplicity: Umbrella companies take care of all the payroll and tax administration, so contractors don’t have to worry about it. Yet this is at a cost to the contractor and often their take-home pay can be up to 30% less than if they were working as a self-employed worker.
• Protection: Umbrella companies can protect contractors from employment law claims. However, umbrellas are unregulated and have been known to cut corners on tax and holiday pay leaving contractors out of ;pocket.
• Benefits: Umbrella companies can offer contractors benefits such as holiday pay and sick pay. If the contractors take time off in time to claim it.
• Flexibility: Umbrella companies can offer contractors a variety of contracts, so they can find one that suits their needs. However, some hiring companies would not be happy if a contractor is working multiple contracts at the same time to increase their earning power
• Fees: Umbrella companies typically charge fees, which can reduce the contractor’s take-home pay.
• Lack of control: Contractors working through an umbrella company have less control over their finances and employment terms
• Compliance risk: Umbrella companies can be non-compliant with employment law, which can leave contractors exposed to risks

Ultimately, the decision of whether to work through an umbrella company or as a self-employed individual is a personal one. Contractors should weigh up the benefits and drawbacks of each option before making a decision. However, when certain roles are being advertised as inside IR35, it makes it very difficult to be self-employed in the UK as previously reported by The Freelance Informer.

Hunt and Sunak’s inflation target of 5% looking “out of reach”

Jatin Ondhia, CEO of property investment platform Shojin, says: “It’s good news today, but there are strong rumours that next month’s data will show a rise in inflation once again.”

Ondhia says, “This story is far from over – Rishi Sunak and Jeremy Hunt’s target of bringing inflation under 5% by the end of the year is looking increasingly out of reach, and that will have implications on consumers, investors, businesses and the financial markets.”

He warns that we have to expect the Bank of England to come hard with more interest rate hikes.

“As borrowing becomes more expensive, this will inevitably further impact house prices and property development. For investors, meanwhile, it is crucial they assess how well-positioned their portfolios are to deliver returns amid stickier-than-expected inflation,” says Ondhia.

There are already rumours of a market crash on the horizon with Michael Burry, the hedge fund who famously shorted subprime mortgages ahead of the 2008 financial crisis, closed out the majority of his US regional bank trade in the second quarter, filings with SEC have revealed.

What this means for mortgages and savings

“We’re not stepping off the rate rise cycle just yet,” says Sarah Coles, Head of Personal Finance at Hargreaves Lansdown.

Coles says the fall in overall inflation is “good news”, but it needs to be seen in the context of “stubborn core inflation, record wage inflation and surprisingly high growth figures”.

“All of these things mean the Bank of England is likely to keep pedalling this particular cycle at the next Monetary Policy Meeting,” says Coles.

She continues, “For anyone with a variable mortgage, it’ll be a while before there’s any really good news. We’re still expecting at least one more rate rise, so your mortgage is still going to get more expensive, and even when rates stop rising, they’re likely to hold steady for months, so there won’t be any easing of your rate in the near future.

“However, for those coming to the end of a fixed rate deal and looking to remortgage, lower rate expectations have already been feeding through into lower fixed rate mortgages – which pushed the average two-year fixed rate back down to 6.79%, according to Moneyfacts – down from the recent peak of 6.85% at the start of August, and only fractionally higher than this time last month,” says Coles.

For savers, Coles says an easing of rate expectations could well mean the 1-year fixed rate market has already peaked and has meant longer-term fixed rates have stabilised. 

She says, “If you’ve been waiting for rates to rise to a level that you’re prepared to fix, it’s time to take stock. The easy-access market, meanwhile, is likely to keep creeping up while rates are rising, especially while the regulator is keeping the pressure on, and NS&I keeps pushing premium bond prize rates ever higher.”

Check out the ONS has released inflation figures for July: 

https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/july2023

What incentives do you think the UK government should give for greater self-employment? Leave your comments.

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