Has employers' National Insurance had its day?

 
Colin Ben-Nathan
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The gig economy is just one of the issues facing the tax system (Source: Getty)

Bringing into line the rate of National Insurance Contributions for the self-employed and employees was near the top of Chancellor Philip Hammond's agenda when he took to his feet for his first Spring Budget, only to fall by the wayside when it was found to be at odds with the Conservatives 2015 election manifesto.

But perhaps the publication of Matthew Taylor‘s Review of Modern Employment Practices could mean that change is back on the cards. Has Employer’s National Insurance (NI) had its day?

If I want you to do some work for me I have a choice: I can hire you as an employee, or we can agree that you will provide your services as a self-employed contractor.

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There are various legal differences – employment rights and so on – between these two options, but one of the biggest factors weighing on my mind will be that if you remain self-employed I won’t have to pay the government a levy (Employer’s NI) equal to 13.8 per cent of your pay (over and above £157 pw). And you won’t have to pay it either. It simply doesn’t apply.

Looked at like this, as a levy that applies to employees but not the self-employed, it is hardly surprising that Employer’s NI is seen by many as a ‘tax on jobs’ – a sensitive charge at a time when many businesses are automating processes, shedding labour and reducing pay rates.

You can add the gig economy into the mix as well – more and more people working in combination with technology platforms and apps, making it increasingly difficult to tell who is employed and who is self-employed in the first place! But Employer’s NIC raises some £65 billion each year. It is too big to bin. So what is to be done?

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How about we re-think Employer’s NIC so that it is no longer geared purely to the wages paid to employees and instead looks to a much broader base – one that means we no longer discriminate against employees’ jobs and their wages and yet we still raise the £65 billion the Treasury needs each year? Yes, but how?

Well, rather than a levy based purely on employees’ wages, how about modifying things so that it applied to day-to-day operating costs as a whole – meaning that a business would be completely indifferent as to whether it engages employees, the self-employed, automates or offshores. Of course the rate would then drop from 13.8 per cent because the base would be broader.

And we could also grant the smallest businesses a credit so that they would effectively pay nothing, as indeed currently happens for Employer’s NI.

If we did this then reference to ‘Employer’s NI’ would become a misnomer; I would suggest ‘Business Social Contributions’ or ‘BSCs’. In other words contributions to the public coffers paid by business on the total resources that they consume in their day-to-day operations.

This approach would also be much simpler for business in that BSCs would not depend on judgement calls on who is an employee and who is self-employed, something which in today’s gig economy is becoming increasingly difficult.

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Importantly, it would also mean that the Treasury’s take would be secure as, inevitably, we see a gradual but increasing trend to automation. Reforming Employer’s NIC like this would also complement the Chancellor’s proposal to more closely align the rates of self-employed NIC with Employee’s NIC which was announced at the time of the Spring Budget but subsequently withdrawn amid questions as to whether it breached the Conservatives 2015 election manifesto. If welfare benefits and state pension are largely equivalent for both why maintain different rates?

The government may respond to other ideas from Matthew Taylor’s much-awaited review, even though tax is formally outside his remit.

Clearly nothing should happen without wide debate and consultation but I do believe that now is the right time to be opening up this discussion and I hope that BSCs, or something similar, will form a part of the debate.

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