Small business and contractor industry experts voice their concerns that the Labour Party could easily follow in the footsteps of the Conservative Party and make no lasting change for the millions of UK small business owners. Will Labour policies help grow small businesses or make it even harder?
Millions of self-employed people in the UK, and a large portion of them — 4.2 million of them — operate as solo self-employed freelancers or sole traders. These micro businesses have between 0 to 9 employees making up 96% of all UK businesses. The thing is politicians and policymakers tie the concept of these small business owners to brick-and-mortar shops and office space, which is out of touch with reality. Millions of self-employed people work from home, remotely and digitally and are run by sometimes one person.
Change out “parents” with “politicians” along with a few choice lyrics to DJ Jazzy Jeff & The Fresh Prince’s song “Parents just don’t understand” and you have a campaign song for the UK’s small business owners.
“Politicians and policymakers simply do not understand what is involved in running a small business,” says, Rory MccGwire, founder of the UK’s largest small business advice website Start Up Donut. “There are so many ways that life could be made easier.”
Small business owners haven’t been able to survive on good-intentioned soundbites about supporting small businesses and innovation over the past 14 years, so how does the incoming Labour Party think they will survive and thrive if he same soundbites are repeated but not backed up with action?
MccGwire asks ‘Will the incoming government’s promised policy changes affect the 99 per cent of UK businesses classed as ‘micro’ or ‘small’?
Will they give freelancers the autonomy they need to grow and run their businesses or as many of the IT contracting industry are experiencing — having to work insider IR35 and/or through unregulated umbrella companies?
MccGwire is not optimistic about policy change that mobilises growth for the majority of UK small businesses. “In reality, these policies will have remarkably little impact,” he says.
Continuing, he says, “Why? Because we have seen these plans and promises many times before, in one guise or another. And yet, successive governments have failed to positively impact the lives of the UK’s smallest businesses,” he says.
Policies that need changing
The three main new policies aimed at helping small businesses, including business rates, the national investment bank and more public sector work being outsourced to small businesses, are not going to change the realities of the current situation, which the Tory Party has put small business owners in.
For example, MccGwire recaps the situation starting with business rates, which have been endlessly discussed and reviewed, with no satisfactory solution. The problem isn’t a lack of banks willing to lend, but the high risk involved in small business lending. Government-backed loan guarantees and enterprise allowances could help. Promises of more public sector work for small businesses have a poor track record. Tendering is time-consuming and costly, with no guarantee of success, and often leads to losses due to undercutting.
Politicians and policymakers don’t understand the realities of running a small business. Small business owners want stability so they can focus on employing people and running their businesses, rather than constantly adapting to new policies.
Employment and tax policies: will they unleash growth or stay the same just with higher taxes?
With a Labour majority now confirmed, Keir Starmer must “grab the bull by the horns” and get behind the self-employed, says Qdos– an insurance provider for the self-employed.
After the Labour majority in the general election, the new government has been urged to address the key tax issues impacting millions of self-employed workers – the key to unlocking economic growth and unleashing the potential of the flexible workforce.
“Following years of tax hikes, freezes and aggressive policy reforms, the new Prime Minister needs to grab the bull by the horns and address the biggest issues facing the UK’s self-employed and flexible workers,” says the firm’s CEO Seb Maley.
Maley, as he has expressed numerous times before to policymakers and MPs, “The off-payroll working rules have seen businesses become needlessly risk-averse in engaging contractors. The result is that genuinely self-employed contractors are being forced into what’s known as ‘zero-rights employment’. Reviewing the rules and addressing the flaws of both IR35 and the off-payroll working rules is crucial.”
Maley also suggests policymakers rethink corporation tax. “Keeping the main rate of Corporation Tax at 25% may mean the UK remains competitive internationally, but even the smallest businesses pay 19% tax on profits under £50,000, tapering upwards to the main rate. This needs rethinking to ensure smaller businesses aren’t subject to unfair, or unsustainable, levels of taxation.”
Other action he wants to see the Labour government take as soon as possible is to do the right thing where the Loan Charge is concerned.
“The Loan Charge was ill-conceived and even more poorly executed. It attempts to recover tax revenues lost to avoidance from the unwitting victims of these schemes, rather than the criminals designing and promoting them – with tragic consequences. It’s essential the government shows compassion and does the right thing for those affected. Harsher deterrents and punishments for tax avoidance scheme operators, and better enforcement, are needed.”
More representation for workers and the solo self-employed is also urged. “Alongside introducing a Single Enforcement Body to manage compliance with employment legislation, the government must also oversee the long-overdue introduction of umbrella sector regulation – helping protect temporary workers from falling into the trap of operating through tax avoidance schemes.”
A resilient economy
Dave Chaplin, CEO of contracting advice site ContractorCalculator believes Sir Keir and a new Labour government have the opportunity to “champion a thriving, flexible, and innovative workforce”.
“The Conservatives failed to do so,” he says. “With the help of the UK’s freelance workforce, we can build a stronger, more resilient UK economy so we must work together to create an environment where self-employment is valued, supported, and can flourish unhindered.”
Chaplin outlines his hopes for the PM to consider:
- A comprehensive review of IR35 legislation that is a “fair, clear, and workable system that doesn’t stifle genuine self-employment.” One that is unlike the current framework which “has created uncertainty and administrative burdens for both contractors and hiring organisations.”
- A call for a level playing field in terms of taxation. “The self-employed shoulder significant risks and lack many benefits enjoyed by employees. A tax system that acknowledges these differences and doesn’t unfairly penalise independent professionals is essential.”
- Greater representation in policy-making processes. “The self-employed are a diverse and vital part of the workforce, and our voices should be heard in discussions that affect our livelihoods.”
Tax avoidance: use the tools at HMRC’s disposal to tackle it once and for all
Crawford Temple, CEO of Professional Passport, an assessor of payment intermediary compliance, says, “I would like to remind Labour that HMRC already possesses the necessary tools to combat this systemic tax avoidance. Real-Time Information (RTI) reporting that was introduced in 2013 along with the 2014 Intermediary Reporting provides HMRC with two sets of data that give a unique insight into the market and the supply chain.
“Matching that data should set alarm bells ringing and help HMRC identify a dubious provider and shut it down immediately. Yet currently it appears this data is not being effectively utilised to proactively pinpoint anomalies that would flag illegal behaviour.”
Temple says Labour must equip HMRC with more resources to significantly enhance enforcement efforts and implement stringent penalties for those orchestrating these schemes.
“However, enforcement alone is not enough,” he says. “We must foster a culture of compliance and transparency within the industry. I have been calling for the formation of a dedicated working group for some time, bringing together experts from the umbrella market, policymakers, and other relevant stakeholders.”
“However, I would issue a note of caution too and ask Labour to take time to understand the market and pressure points before making and taking any hasty decisions. The Tories paid lip service to listening to industry experts then ignored them and that is why the sector is in the place it’s in. Let’s hope that a Labour government will listen, and we can make some real progress.”
No more brick-and-mortar press photos please: will Labour really help small businesses grow to their full potential?
Op-ED
If we soon start to see Keir Starmer in pre-planned press images down to his local coffee or butcher shop to help behind the counter, it is a sign he is following the path of the many Prime Ministers before him.
Now, on the other hand, if we start to see Sir Keir posing in photos beside a freelance journalist or copywriter racing to complete copy for a deadline, or bent under a sink with a plumber, entertaining the kids while the childminder prepares meals or sitting at the desk with a software engineer or IT contractor as they integrate a new software app or cybersecurity protocol into a client’s IT system, then we may start to believe that the Labour Party understands the millions of unique identities of the solo self-employed. We do not all fall into one of two camps: 1) the old extortionately paid public sector consultant or 2) the Uber driver.
People are increasingly choosing to become independent workers for various personal reasons. Some seek the flexibility to raise a young family within the confines of the 9 to 3 school day, while others leverage their skills to help businesses grow and achieve uncapped earning potential. Often they are achieving both of those two objectives. Additionally, many apprentices in skilled trades naturally transition into self-employment after completing their training.
But the vast majority are not going into business for themselves to avoid tax! We just want a fair tax system that appreciates our autonomy, the risks we take and the lack of financial support and benefits we have access to because of those calculated risks. Any tax policy changes should be carefully considered and if changed done so gradually and with empathy to avoid a financial mess that could cause connected industries to suffer. For every action, there is a reaction. Let’s hope the changes Labour make are the type that help the self-employed thrive after 14 years of Conservative Party lip service.
