Pros and cons of political party policies affecting self-employed and agency contractors
Policies on inheritance tax, pensions, IR35, national service and defence: pros and cons
The upcoming general election on July 4th in Great Britain has several political parties presenting diverse tax policies that will significantly impact self-employed individuals and agency contractors. This analysis breaks down the major parties’ tax proposals revealed in manifestos or indicated as potentials by the latest news reports. Here we outline in brief the pros and cons for each, and examine other new policies that could affect voter decision-making.
Please note these are proposed policies at the time of writing and could change before the General Election including the IFS Manifesto analysis carried out on 24 June.
IR35: what are the political party stances?
In the lead-up to the July 2024 general election in the UK, the major political parties have distinct positions on IR35, the controversial off-payroll working rules affecting contractors and freelancers:
- Conservative Party: The Conservatives have not committed to abolishing or significantly reforming IR35. Their focus has been on maintaining stability and continuity in tax and business policies, aimed at reassuring investors and businesses. There is no indication they plan to make any substantial changes to the current IR35 regulations
- Labour Party: Labour’s approach involves addressing broader employment status issues. They propose merging the statuses of ‘Worker’ and ‘Employee,’ which could simplify classifications for contractors and potentially mitigate some of the complexities associated with IR35. However, Labour has not explicitly stated plans to abolish the IR35 rules
- Liberal Democrats: The Liberal Democrats have shown support for reviewing the IR35 rules. Deputy Leader Daisy Cooper has indicated that the party is open to re-evaluating these regulations, though specific details or promises to abolish the rules entirely have not been confirmed
- Reform UK: Reform UK has taken a strong stance against IR35, promising to abolish the rules to support freelancers. This position is the most radical among the parties and directly appeals to the self-employed community unhappy with the current IR35 framework
Each party’s stance reflects their broader economic and employment policies, with Reform UK and the Liberal Democrats offering the most direct challenges to the existing IR35 rules.
Conservative Party
Pros:
Lower Income Tax: Proposes a reduction in income tax rates for higher earners, potentially increasing take-home pay for successful self-employed professionals. However, national insurance cuts could be aimed at sole traders and not limited company directors who run their business predominately as a solo self-employed business or consultancy.
Simplification of Tax System: Plans to simplify the tax system for small businesses, making it easier for self-employed individuals to comply with tax regulations. However, more details need to be provided as HMRC are still under staffed.
Expansion of IR35 Reforms: Aims to provide more clarity and support around IR35 legislation, potentially reducing administrative burdens for contractors. However, more umbrella company contractors could come under greater scrutiny for inadvertent tax avoidance based on umbrella company practices.
Cons:
Impact on Public Services: Lower taxes could result in reduced funding for public services, which may affect infrastructure and social benefits.
Benefit Reductions: Potential reductions in social benefits might impact self-employed individuals relying on these during lean periods.
Labour Party
Pros:
Fairer Taxation: Proposes higher taxes on the wealthy and large corporations, aiming to redistribute wealth and reduce income inequality, which could benefit lower-earning self-employed individuals.
Increased Public Spending: Plans to invest in public services, which could improve infrastructure and social safety nets beneficial to all citizens.
Universal Basic Income (UBI): Advocates for UBI which could provide a safety net for self-employed and freelance workers during periods of low income.
Capital Gains Tax (CGT) Reform: Estimates suggest that increasing CGT rates could generate £8 billion for the Treasury in the long term, which might fund additional social programs benefiting lower-income self-employed individuals.
Cons:
Higher Taxes on High Earners: Increased taxes on high earners might discourage entrepreneurship, investment and savings among successful self-employed professionals.
Complex Tax System: Potentially more complex tax code could increase compliance costs and administrative burdens for small businesses.
Inheritance Tax Overhaul: Proposals to overhaul inheritance tax could create uncertainty for those relying on agricultural land and business relief, potentially affecting family-run self-employed businesses.
Liberal Democrats
Pros:
Support for Small Businesses: Proposes targeted support for small businesses, including grants and subsidies that could benefit self-employed individuals and contractors.
Green Economy Incentives: Plans to provide tax incentives for businesses and individuals engaging in environmentally sustainable practices.
Cons:
Moderate Tax Increases: Proposes moderate tax increases to fund public services, which could reduce disposable income for some self-employed individuals.
Complex Eligibility Criteria: Grants and subsidies might come with complex eligibility criteria, making it difficult for some self-employed workers to benefit.
Reform UK
Formerly known as the Brexit Party, Reform UK has advocated for several tax policies that could potentially impact the self-employed and small business owners. Here are some general pros and cons that might be associated with their tax policies:
Pros:
Simplified Taxation: Reform UK has often proposed simpler tax structures, which could potentially reduce administrative burdens for small businesses and the self-employed. This could lead to cost savings and more efficient operations. They have also proposed to abolish IR35.
Lower Tax Rates: The party has historically advocated for lower overall tax rates. Reduced taxes could increase disposable income for self-employed individuals and small business owners, allowing them to invest more in their businesses, expand operations and have more financial stability between projects and assignments.
Tax Incentives: There may be proposals for targeted tax incentives including tax breaks aimed at encouraging entrepreneurship and small business growth.
Support for Small Businesses: Reform UK has voiced support for policies that aim to foster a competitive environment for small businesses, potentially including measures to reduce regulatory burdens and encourage innovation.
Cons:
Impact on Government Revenue: Lowering tax rates could reduce government revenue, potentially leading to cuts in public services or increased national debt if not offset by other revenue sources or spending cuts.
Lack of Specificity: Detailed plans for tax reform may not always be fully articulated, making it challenging to assess the full impact on different segments of the economy, including the self-employed and small businesses.
Risk of Inequity: Depending on how tax cuts are structured, there is a risk that benefits could disproportionately favour higher-income individuals or larger corporations rather than smaller enterprises.
Other Notable Policies Impacting Voters
Inheritance Tax (IHT) Reforms:
Conservative Party: Proposes increasing the threshold for IHT, which would reduce the tax burden on families inheriting estates.
Labour Party: Advocates for lowering the threshold and increasing rates on large inheritances to promote wealth redistribution, with potential consultations launching in autumn for radical changes like scrapping or updating rules on agricultural land and business relief.
Liberal Democrats: Suggests a moderate approach, maintaining current thresholds but closing loopholes.
Reform UK: Supports abolishing or significantly reducing inheritance tax to promote wealth accumulation and entrepreneurship by allowing individuals to pass on assets to heirs without heavy taxation. Also looks to facilitate smoother transitions of family businesses across generations.
Pension Policies:
Conservative Party: Promises to maintain the triple lock on pensions, ensuring they rise by the highest of inflation, average earnings, or 2.5%.
Labour Party: Plans to review the pension system to ensure it is fairer, potentially increasing state pension for lower-income retirees.
Liberal Democrats: Proposes maintaining the triple lock and offering additional support for pensioners living in poverty.
Reform UK: Advocates for personal responsibility in retirement savings, encouraging policies that promote individual savings and investment rather than reliance on state pensions. They may propose simplifying pension regulations and reducing bureaucracy.
National Service and Defence:
Military chiefs have announced they are planning the biggest mass mobilisation exercise of Britain’s Army reserve in 20 years. This is in an effort to deploy the readiness of more than 10,000 ‘weekend warriors’. At present, there are 26,240 Army reservists, but it is yet known how many will stand up to take part in the exercises set for September. The Daily Mail reported that “soldiers from specialist medical, infantry units and special forces reserves will be asked to volunteer for a six-month tour of duty – with commanders seeking to secure a reserve force of 10,000 ready to support the frontline Army if needed.”
Conservative Party: Introduces a voluntary national service scheme for young people, which could include community projects and skills training. Those refusing to take part could potentially lose access to financial products and driving licenses, according to news reports.
Labour Party: Opposes mandatory national service, instead focusing on enhancing educational and vocational training.
Liberal Democrats: Suggests more recruitment for military personnel is required rather than a national service scheme, which could take away much-needed funding for existing military programmes.
Reform UK: Suggests national service would not be as effective as full recruitment of 30,000 military personnel backed by a boost in defence spending to 2.5% of GDP reaching 3% as soon as possible.
A lot to consider
The tax policies of the political parties in the upcoming election present a range of pros and cons for self-employed individuals, agency contractors and their families. The Conservatives focus on tax reductions and simplification, Labour aims for wealth redistribution and increased public spending, and the Liberal Democrats advocate for targeted support and green incentives. Additionally, policies on inheritance tax, pensions, and national service will also play crucial roles in shaping the economic landscape for all voters.
However, if the polls are already showing all of us that it will be a Labour win with a minuscule amount of Parliamentary seats voted in for other parties, we all have to prepare for the policies of the Labour Party.