Is self employment the panacea for all our ills?

The ConDem Coalition claims that “more people are in work than ever before” have been undermined by a report that shows the number of traditional employee jobs is falling or flatlining across the country – a phenomenon masked by an explosion in recorded self-employment which one economist describes as “the last refuge of the desperate”.

Only London has shown a marked rise in employee jobs in the last six years, according to new analysis by the independent thinktank the Resolution Foundation, seen exclusively by the Guardian.

Gavin Kelly, chief executive of the Resolution Foundation, said: “The defining feature of the post-crisis jobs market has been the strong performance of employment alongside an unprecedented fall in wages. But underneath the headline job figures over this period we saw a staggering increase in self-employment that cloaked far weaker performance for employees. Looking back over the whole downturn we see that in most regions the rise in people working for themselves ran alongside a fall in employees.”

A particular concentration of older part-timers among the self-employed is one sign that sole trader status could now be masking semi-employment for some parts of the workforce.

The labour market economist and former Bank of England rate-setter David Blanchflower, who has studied trends in self-employment for many years, said: “Particularly after a prolonged downturn, there is a well-documented pattern of people failing as jobseekers and then moving into self-employment status, often out of desperation rather than anything more positive.”

“Self-employment is often a last resort of the desperate,” Blanchflower said. He added: “Such workers operate under considerable strain, worried about where their income is coming from, and are sometimes forced to finance themselves by borrowing against their home, exposing their families to the same financial uncertainty that attaches to their job.”

Gillian Guy, chief executive of Citizens Advice, added: “Many people working for themselves are seeing their efforts unravelled by debt.”

Hopes that burgeoning self-employment represents a genuine wave of entrepreneurialism are undermined by a second piece of work by the Resolution Foundation, also published on Tuesday. It finds that while weekly wages for employees have fallen 6% since 2007, typical self-employed pay has tumbled by 20% in the same time. This leaves the typical self-employed person now being paid 40% less than the average employee.

A government spokesman said: “Self-employment plays an important role in the UK’s flexible labour market and as this report shows, the vast majority of those self-employed prefer to work for themselves.”

Blanchflower counters that “less developed economies like Mexico, Chile and Greece often have more self-employment, while more developed and ‘entrepreneurial’ economies have less. The UK now has roughly twice as much self-employment as the US.”Professor Stephen Machin of University College London – a leading expert on labour markets – said: “The changing composition of jobs, and in particular the rise in low-wage self-employment, is an important and worrying recent development that underpins some of the discussions about the number of jobs hitting record levels. This is especially true in some parts of the country where this compositional change is masking what is happening in terms of jobs growth.”

The shadow work and pensions secretary, Rachel Reeves, said: “This report shows how the cost-of-living crisis is making life harder for millions of self-employed people who have seen their earnings fall dramatically. It’s increasingly clear that David Cameron’s government has failed to tackle low pay and insecure work. A Labour government will raise the minimum wage, get more employers to pay the living wage and look carefully at how universal credit supports the self-employed.”

A Treasury spokesman said: “The government’s long-term economic plan is working; the economy is growing, the deficit is falling, and more people are in work than ever before. But the job is not yet done, and the biggest risk to the recovery would be abandoning the plan that is delivering economic security for hardworking people.”

As someone who deals with taxation of all types of income on an almost daily basis, I say this … claimaints (of varying abilities when it comes to record keeping) are being pushed into self employment by this government in order to massage the employment/unemployment figures. Self employment status is riddled with pitfalls and even self employed workers represented by a decent accountant can fall foul. Let me put it this way; HMRC had to change simplified assessing to self assessment, because it wasn’t … simple that is!

Here’s a link from HMRC website, which shows the responsibilities and obligations for self employment.

http://www.hmrc.gov.uk/working/intro/selfemployed.htm

…and woe betide you if you get it wrong by missing a filing or payment date because the new penalties regime (introduced by the Finance Act … thanks to George Osborne for that!) is Draconion to say the least.

 Oh yes, don’t let me forget about National Insurance; there are implications for future State Pension. If your income is below the Small Earnings Exemption limit (SEE) you do not have to pay Class 2 National Insurance. This means that you will have insufficient contributions to qualify you for state pension, although you can make voluntary contributions of Class 3 National Insurance. In reality, how many people will voluntarily make contributions if they are already living hand to mouth.

There are implications for Tax Credits too. Mike Sivier over at Vox Political as well as other bloggers have covered this point in some detail.

Tax credit debt collection is a double-edged attack on the poor

If you work from home as a self employed person, which most people will, then your buildings and contents insurance policy will require revision (with the resuting increase in premiums of course). If you don’t tell the insurer about the change of status to your home (use of home as an office) you will be classed as failing to disclose a material fact and the insurance company may then not pay out.

 So there you have it. This government know all this of course, but it appears that they don’t give a flying f**k. All they are interested in s spinning the employment figures so that Carney over at the Bank of England can put the interest rates up, because friends of the tories (including tory donors)  have been bumping their gums about what little returns they are getting on their investments and of course tories rub shoulders on a daily basis with those sort of people don’t they (rather than the likes of me and you) so those are the people that they listen to.