If Prime Minister Rishi Sunak wants to make good on his “Startup Treasury Mentality” he’ll need to advise his Chancellor to help pass policies that embrace freelancers rather than exclude them. Will Mr Sunak revive the Conservative’s former status as the Party of Business? Many are doubtful.
Now that Rishi Sunak is Head Honcho at No. 10, he is in an enviable position to impress his Stanford University alum, some of the world’s most successful company founders. But if he sustains or even adds policies that stifle and scare freelancers from their self-employed status, he could be killing crucial economic and startup growth, something Stanford grads presumably to avoid once they are in leadership positions.
Here’s why. The majority of startups are founded by freelancers. And when a startup is in a position to scale up it often hires fellow freelancers to help them reach tough milestones. Anyone who has worked in a startup knows freelancers and company growth are intrinsically linked.
But if freelancers are used as easy tax grabs, then millions of freelancers could struggle to pay their bills and potentially be a burden on the taxpayer system. When Chancellor Jeremy Hunt announced that the new government plan was being postponed to 17 November he did not offer a glimmer of hope, but rather something more ominous: “Difficult decisions that stand the test of time.” That sounds like higher taxes to me.
The UK needs startup incentives that are visionary and not freelancer-exclusionary
Back in 2021, Rishi Sunak, then Conservative Party Chancellor of the Exchequer under the leadership of PM Boris Johnson, relayed to a venture capitalist podcast host the greatest lessons he learned from his MBA days at California’s prestigious Stanford Business School in California.
“How has my time at Stanford University impacted my mindset today? That was one of the questions Harry Stebbings asked when I recently went on his 20VC podcast live,” Rishi Sunak posted on his Facebook page on 21 June 2021.
The post continued: “I told him, other than an appreciation of the weather, it’s also a home of entrepreneurship, creativity, innovation, and those are probably the most important ways being out there in the US changed my life in terms of the trajectory that I was on. It broadened my mindset out considerably because you’re in that world surrounded by that culture. I’ve tried to bring that into my job here.
“I’ve talked before about trying to create a start-up Treasury mentality where we just do things a bit differently. We do things a bit more creatively, and innovatively.
Rishi Sunak as Chancellor of the Exchequor in 2021
“For example, I was there for an MBA it’s also a home of technology, so those two things have stayed with me, the importance of technology and the importance of actually understanding management and how businesses work.
“That’s why we ultimately created Help to Grow in the Budget, which I hope will be something that stays in this country for a very long time.”
The Help to Grow scheme has a £520m budget. The thing is its eligibility threshold means 90 per cent of SMEs can’t apply because companies must have a staff of 5 or more people. Most startups are founded by one to two self-employed individuals (i.e., Amazon, Hopin, Kentucky Fried Chicken, Ragu).
Business groups such as the Association of Accounting Technicians (AAT), ACCA, Coadec, the Forum for Private Business and the Entrepreneurs Network, called on the government to make changes, including lowering the eligibility threshold. Nothing has changed as per the government’s site.
According to a Computer Weekly article the business groups also called for broadening the support available for those that obtained money through the scheme, including more training for more than one staff member.
Phil Hall, head of public affairs and public policy at AAT, said in the CT report:
“We didn’t think it was sensible to exclude over 90% of small businesses by requiring businesses to employ five or more staff to be eligible, and instead felt any company employing one or more individuals should be able to participate.”
Broken trust and promises: will things change?
Arguably, many freelancers and small business owners that are limited company directors (for limited liability purposes) are of the feeling that Treasury policymakers distrust them or find their contribution insignificant. The justification for these feelings goes back to the pandemic when more than 3 million self-employed people were excluded from COVID government support. It also stems more recently from the scrapped repeal of IR35 reform and the Help to Grow Scheme.
Tax and IR35 experts are urging a review of IR35 off-payroll working rules. IR35 Shield CEO Dave Chaplin explained in a recent Financial Times piece that the current off-payroll rules “appear to misclassify around half of the genuinely self-employed workers operating via limited companies”.
Chaplin pointed out in a LinkedIn post that the FT article reported that there is widespread criticism that the system is onerous for companies and forces genuinely self-employed contractors to lose their rights to be their own boss.
“Unfortunately, the incumbent government are too busy playing games amongst themselves rather than actually sorting this out,” said Chaplin in his post.
Chaplin said in a later statement on 25th October that “Rishi Sunak has a mammoth task on his hands if he is going to regain any credibility for the Conservative Party and himself.”
He continued:
The Tories purport to be the party of small business but when it comes to the self-employed Rishi Sunak has already thrown this important group of workers under the bus….twice; firstly, by excluding a large majority of them from any financial support during the pandemic and secondly by imposing the off-payroll legislation on them.
Chaplin admits that the mini-Budget did have some very promising policies, which he fears are now going to be cast aside under the new leadership.
“In his mini-Budget, Kwasi Kwarteng recognised that the off-payroll working rules were having a hugely damaging effect on the UK’s flexible workforce as well as the firms that rely on their talent,” said Chaplin.
This, in turn, was harming the UK economy. There was a glimmer of hope when the former Chancellor announced the repeal but his successor Jeremy Hunt U-turned on that promise and so the harm will continue. Rishi Sunak has already raised taxes to the highest level we have witnessed in 70 years and is apparently set to do it again.
Dave Chaplin, IR35 Shield
Self-employed turning back on the Tories
“It is time that the Conservative party made amends with the self-employed to show how much it values them, but I fear that the damage may have already been done,” said Chaplin.
“Unless we hear and see action rather than platitudes any time soon from the so-called party of business, I foresee the self-employed turning their backs on the Tories and engaging with the Labour party who appear to have better policies on offer to support, rather than punish, freelancers,” he said.
Qdos CEO, Seb Maley, shared his sentiments, shadowing what many freelancers might be losing sleep over under a Sunak-Hunt leadership:
Rishi Sunak becomes Prime Minister at a time when millions of self-employed workers are worried about their futures. In recent years, the independent workforce has been hit again and again by needless, short-sighted tax grabs – many of which Mr Sunak himself introduced while serving as Chancellor. The Prime Minister has a long road ahead to win the support of the self-employed, but the work must start immediately.
“Having U-turned on the IR35 reform repeal and insisting on rolling out a potentially disastrous Corporation Tax hike next year, the government must press the reset button and rethink how the UK’s smallest businesses are treated. At a time of such uncertainty, the Prime Minister would do well to consider just how important independent workers are to the economy,” says Maley.
Founder of IWORK, Julia Kermode, is not convinced the new PM will be making the self-employed a high priority regardless of his learnings at Stanford.
“I can’t help but think that Rishi Sunak’s appointment is bad news for the self-employed. Just look at his track record. He rolled out IR35 reform, along with various other tax increases, and knowingly excluded millions of self-employed people from Covid support,” says Kermode.
The self-employed need support and they need it now. Given the haste at which tax cuts and hikes are rolled out and reversed these days, a quick win for the Prime Minister – and one which would make a big difference to anyone supplementing their income to pay their bills – is to raise the £1000 trading allowance. Increasing this would mean self-employed people could earn more before being taxed.
Founder of IWORK, Julia Kermode
If Prime Minister Rishi Sunak can help the self-employed have the right to be their own boss, bring down mortgage rates, and announce other incentives such as boosting the trading allowance he could win a few million freelancers and startup founders over. Something to shout about at the next Stanford University networking event.
However, if workforce and tax policies, and even reported tax loopholes remain unchanged, complicated, vague and seemingly unfair, millions of voters could call the new PM and his Chancellor out for not playing fair.
Prime Minister Sunak has a very tough job to do. That is undeniable. But he has been known to keep away from the public eye and press questioning when things get tough. This is a luxury he can no longer afford as the Prime Minister.
Looking ahead, the PM and Chancellor should take note that freelancers are a large part of Britain’s economy and startup ecosystem. They have been ignored for far too long. And in their eyes, punished under the Conservative Party’s leadership. Isn’t it about time that changed?
Freelancers need to go to angel investors, banks, and if their ideas are big enough to venture capital firms for their funding. You can hardly justify a government being involved in a process where 90% of the diaspora in the freelancer segment will make a dent in the economic contribution to the nation or indeed augment employment for others rapidly. Quoting one person startups such as Amazon or Facebook is anecdotal. Even these wonders did not have any direct government policy support when they broke through the freelancer phase. The policies should not be changed and freelancers that are innovative and persistent will find their way through such hurdles. This is not an ignored area, its a part of the economy which needed to learn how to break through with its own persistence and intellect. There are many many ways in which it is already supported by government policy without squandering public funds on high risk venture subidies or funding.
It’s not hurdles we are looking at here, it’s shackles. The reality of daily life for freelancers involves being treated as an employee for every contract, no matter how long that contract may be or how much working time it involves. That means having basic rate tax deducted at source until you can prove it’s your “only job”, being forcibly enrolled in a new private pension scheme for every contract that runs past 12 weeks, having to fund 100% of expenses after deductions, and thus being penalised for running 2 or more contracts side by side. Then if you decide to go down the Umbrella route, you risk being robbed blind by the umbrella company or sold down the river by them using tax avoidance schemes. Even if they don’t commit either of those crimes they’ll charge you handsomely for deducting every possible penny from your pay before allowing you a portion of it. It’s impossible to budget or plan when you have had all control of your business finances removed. Who on Earth wants to take on additional contracts when they’ll only clear £5/hour in profit by the time every Tom, Dick and HMRC has helped themselves to the rest of your promised hourly rate? May as well put your feet up and not take on the hassle! It’s got nothing to do with “angel investors”. You’re talking about big dreams. I’m talking about daily facts. IR35 is breaking the legs off contractors who want to work but are being penalised heavily for their drive, ambition and work ethic.
His Stanford classmates are surely impressed. Stanford GBS is a truly unique place! The classmate next to you could become a prime minister!