Spring Budget focussed on the labour market, yet ignored the self-employed
'Economic inactivity' became a buzzword in the weeks leading up to last week’s Spring Budget 2023. The chancellor’s message in the lead-up was that Britain’s workforce needed all hands on deck to support the economy through choppy waters.
With this in mind, we expected Jeremy Hunt to leave no stone unturned in his mission to get more people into work, writes Andy Chamberlain, policy director at IPSE. But by the time Mr Hunt sat down after delivering his statement, it became apparent that a proverbial boulder remained untouched -- the self-employed sector.
A next-to-nothing for the self-employed Budget, again
The self-employed are overlooked in policymaking at a frustrating frequency. Recent Budgets have delivered next to nothing in the form of supportive measures to enhance the sector, which we so often see for other segments of the economy.
Meanwhile, small company owners (which sole trader freelancers often go onto become) have suffered the collateral damage of efforts to raise more tax from the dividends of wealthy investors.
And now, ‘self-employment’ can’t even receive an acknowledgement as a valid route into the world of work for those who have spent time out of it, for whatever reason.
A Budget for top rate freelancers with a pension
What Spring Budget did deliver was a substantial relaxation of tax-free limits on pension contributions, which will see the Annual Allowance (the amount you can save tax-free each year) increase from £40,000 to £60,000 in April, while the Lifetime Allowance – that’s the cap on lifetime tax-free pension savings – was scrapped entirely.
With these two moves, the chancellor’s ‘back-to-work’ Budget (as he trailed it) hopes to encourage experienced workers to stay in work for longer to boost their pensions, while enticing early retirees to return and do the same.
Although this could benefit some very higher earning freelancers, it doesn’t come close to addressing the real pensions problem for the self-employed. And that problem is that many simply aren’t saving for later life at all. In fact, as many as 14% aren’t, according to 2021 research we did.
Are you part of the under-pensioned?
Indeed, the self-employed are recognised by the pensions industry as one of a handful of ‘under-pensioned’ groups who, without significant intervention, could face serious hardship in retirement. The sort of significant intervention a chancellor could make? Probably.
Addressing this lack of retirement provision by the self-employed requires urgent work by government to deliver measures of a scale comparable to automatic enrolment for employees; yet, while pensions grabbed the headlines from last week’s Spring Budget, government made no mention of the savings crisis facing a vastly greater number of people than those served by easements to tax limits.
If the government is seriously concerned about labour market participation – which it claims it is – then it needs to ask itself some difficult questions about why we’ve seen self-employment reduce from over five million at the start of 2020 to around 4.3million now.
The 700,000 missing self-employed...
Replenishing the 700,000 ‘missing’ self-employed would provide a vastly more effective boost to the labour market than the comparatively miserly 15,000 additional people in work that the Office of Budget Responsibility predict will be created by the relaxation of the pension allowances.
The government should focus its attention on solving the pensions crisis among the self-employed and clearing up the mess of the revised IR35 rules which have undoubtedly pushed many out of work altogether.
But most of all, the government must recognise that the self-employed are a vital part of the UK’s labour market. Leaving them out of the picture while attempting to tackle economic inactivity was a huge oversight.