Insecure employment costing public finances £4 billion a year
Bek Frith, February 14, 2017
Lower gross earnings mean lower revenue from income tax and NICs, according to the TUC
The growth of insecure employment – those working without guaranteed hours or baseline employment rights – is costing the Exchequer an estimated £4 billion a year, according to a report from the Trades Union Congress (TUC).
The impact of increased self-employment and insecure work on the public finances found that there is an earnings penalty for insecure work. Self-employed workers and those on temporary contracts (such as zero-hours contracts) earn considerably less than employees.
This earnings penalty adversely affects the public finances because lower gross earnings mean lower revenue from income tax and National Insurance Contributions (NICs).
The overall impact of additional insecure working over the last decade on the public finances is estimated to be a net loss of revenue of £5.3 billion (assuming that all the additional self-employed people in the UK workforce are sole traders), or £5.6 billion (assuming that all the additional self-employed people are owners/directors).
Around 45% of the total fiscal impact is due to reductions in National Insurance contributions receipts, 32% due to reduced income tax receipts, and 23% due to increased tax credit and social welfare payments.
TUC general secretary Frances O’Grady warned of the knock-on effects of insecure work. “The huge rise in insecure work isn’t just bad for workers. It’s punching a massive hole in public finances too,” she said. “Zero-hours contracts and low-paid self-employment are costing the economy billions every year in lost tax revenue. That’s money that could be spent on stopping the crisis in our schools and hospitals and making sure every elderly person gets decent care.
“Bosses who employ staff on shady contracts are cheating all of us. That’s why we desperately need more decent jobs that pay a fair wage. Getting more people into unions is key. Workers in unionised workplaces are twice as likely to be on better-paid secure contracts.”
Speaking to the BBC, RSA chief executive Matthew Taylor, who is leading a government review into modern working practices, said that some businesses are using self-employment as a way to reduce their tax bills.
"It is clear to a certain extent what is actually going on is people are creating forms of work for themselves, or businesses are creating forms of work, to try to avoid tax," Taylor said. "I think what should drive businesses is efficiency, productivity, innovation – not trying to evade tax."
Approximately 810,000 people in the UK were on zero-hours contracts in 2016, around 730,000 were in insecure temporary work, and 1.7 million were in low-paid self-employment.