No Safety Net for Self-Employed when Tax Credits Cut

The self-employed form a dark corner of the UK economy into which the Conservative government chooses not to peer closely.

The impact of tax credit cuts on the self-employed is a matter on which ministers have largely remained silent.

At the latest count, between June and August 2015, 4.497 million people were self-employed and 26.427 million were employees.  One person was self-employed for every five to six employees.

All the rhetoric about coming increases in the minimum wage is irrelevant to the self-employed because they have to find their own wages. And it’s pretty likely that some employers will be encouraging employees to go off into self-employment, to lessen the impact on business profits of both auto-enrolment in workplace pensions (with compulsory employer contributions) and of the coming introduction of the ‘national living wage’.

If you are self-employed, the ‘national living wage’, starting in April 2016 at £7.20 for workers aged 25+, means nothing – and could even depress self-employment incomes if employers shed over-25s, increasing the numbers competing in the world of self-employment, which too often means casual shifts or short-term contracts.

The government includes the self-employed in its ‘jobs’ figures (creating a rosy image of plentiful job creation) but excludes them from workforce earnings figures (because they would depress those figures and prompt observers to ask how real the UK’s ‘economic revival’ really is).

The latest figures from HMRC for self-employment earnings are for 2012-13, and they show 897,000 cases of zero income, because the business made a loss, or its profits are offset by capital allowances or by losses suffered in previous years. Of the 5.76 million instances of self-employment – individuals in most cases – 1.99 million achieved annual income of less than £3,000, and the incomes of another 2.49 million were between £3,000 and £14,999.

At the other extreme, in 91,000 cases, annual income exceeded £100,000, and for this select group averaged £261,538.


The chart opposite shows clearly that the great majority of incomes from self-employment were very low in 2012-13, while a few, the 91,000, had earnings ranging from very comfortable to astronomical. The picture in 2015-16 is unlikely to be much different.

The self-employed are already poor relations in the world of welfare. No holiday pay, sick pay, statutory maternity or paternity pay, no entitlement to industrial injuries disablement benefit. No employer to make pension contributions on their behalf.

Many of the 4.497 million individuals who are nothing but self-employed — they do not also have a full-time or part-time job as an employee — have been able to survive only because of tax credits. The government’s argument that a higher personal tax allowance will help does not wash with those, probably over 3.5 million, whose total income is unlikely to reach the giddy heights of £11,000, the personal allowance from April 2016.

Some of the self-employed have pension incomes: nearly half a million are aged 65-plus, and most of these are likely to receive pension payments. That still leaves around four million self-employed individuals who are under 65 and in the main on very modest incomes. Yes, there will be under-reporting — cash-in-hand jobs, some illegal earnings — but the big picture is a dark one of an under-rewarded, reserve labour force for whom the national living wage will be a total irrelevance because they do not have an employer. Tax credits, on the other hand, are their lifeline.


More information

‘Self-employed workers in the UK 2014’, Office for National Statistics, August 20th 2014

‘Self employment income assessable to tax 2012-13’, Survey of Personal Incomes from HMRC, updated January 2015

‘Social security provision and the self-employed’, Social Security Advisory Committee, occasional paper no.13, September 2014

‘Summary of Labour Market Statistics’ table 3, full-time, part-time and temporary workers, October 14th 2015

Working tax credits are paid to working people aged 16-24 if they have a child or one of a range of disabilities, and to people in work who are aged 25-plus, whether they have children or not. Child tax credits are paid to parents, according to their income.

Upper thresholds for working tax credit are £14,000 for single people without children, £19,000 for couples without children, and £40,000 for families with children. The Daily Mirror has published a concise guide to the proposed tax credit cuts wanted by George Osborne, the Chancellor, but on which the House of Lords forced a rethink this week.








Worry About Deflation in a Debt-Ridden World

Gail Tverberg, an experienced actuary, is essential reading for all who are concerned about our present impossible marriage between infinite growth economics and the finite world on which we live. Here she explains why plunging commodity prices are not the good news you might think:




Chancellor Caught in Debt Trap

From Surplus Energy Economics:

Oh Dear There’s an Asteroid Heading Our Way…..

…but let’s not worry about that yet, say the crowd in the pub.

An asteroid might or might not slam into Earth, but there are more immediate dangers to understand. Richard Heinberg — link below — argues that we must build more resilience into our straining, breaking systems — environmental, social, political, economic…  In ‘Fingers in the dike’ on, Richard Heinberg looks at the unpleasant interactions between energy, money and climate systems:

The ways that we compartmentalise and certificate knowledge are, I think, partly to blame for the difficulty we have in visualising our world as a complex adaptive system in which the linkages between component parts are as critical as the parts themselves. The people who analyse the functioning of broad systems, across the boundaries of traditional ‘subjects’ are often on the receiving end of academic and political marginalisation, sadly.

The Sustainable Development Commission had a greenwash type of name but, led by Jonathon Porritt, it acted as a subtle ecological conscience for the United Kingdom.  It was an advisory link between government departments, and a reminder that systems do not stop at the exits of ministerial domains.

The commission was abolished by the Conservative/Liberal Democrat government in 2010. In fact, axing the commission was one of this government’s early acts, although the British people were told it would be the “greenest government ever”, a misleading statement which adds to the widespread distrust of politicians, and to apathy.

Both Richard Heinberg and Gail Tverberg (what is it about the bergs?) see clearly how systems form interacting hierarchies that should not be analysed solely in isolation from each other. Gradually the power of their arguments is gaining support from green-minded people.

Pat Dodd Racher

Curbing Banks’ Excesses: the Tide Begins to Turn

by Pat Dodd Racher

“If we cap bankers’ bonuses they will go somewhere else.”

Not me saying that, but lots of people in politics and finance.

They assume it is normal, praiseworthy even, for bankers — people — to place personal wealth above everything else. This makes bankers just like mercenary soldiers, but we don’t place those on a pedestal, do we?

The fiction that love of money is a value we should not question permeates so much of 21st century thinking that it was a relief to hear the European Parliament’s decision to cap bankers’ bonuses at 100% of salary, up to 200% with shareholders’ approval. It is even more of a relief to know that Swiss voters have told their government, in a referendum today, to introduce a law giving shareholders the power to control executives’ pay.

Bankers used to look after customers’ money and decide to whom to give loans, but machines have taken over those jobs.  Too much of banking now is irrelevant to the real economy, and often socially catastrophic, such Goldman Sachs’ ‘structuring’ of Greece’s national accounts to make it look as though the country qualified for entry to the Eurzone. Yes, there was an apparent bonanza, but when the book-cooking pot boiled dry, the financial chefs were not handed the bill. There is a disaster in Greece: see and the Greece section in  — just two samples of the troubling reports from previously comfortable, now dejected, disconsolate nations, like Portugal, Spain, even Italy. The bankers, though still take their bonuses, still live in bubbles protected by the wealth flows they have learnt how to control.

The Greek government, no government, should set out to defraud, of course, but the amounts that ministers and acolytes can siphon off are tempting, and will continue to tempt all the time that wealth endows power. Maybe we are starting to see a gentle turning of the tide, a slight weakening of the prestige we have accorded to immoderate wealth.

Maybe, hopefully, in the near future we’ll see more votes like those in Switzerland and in the European Parliament, and the hollow refrain “they’ll move somewhere else” will be relegated to history.