The Chartered Institute of Taxation has called for a debate on the tax burden of the employed versus the self-employed.
It says that “the imbalance between the tax burdens on employment and self-employment remains unsustainably large” and rues the decision to rule out NI increases for the self-employed.
On the same day, Tom McPhail of Hargreaves Lansdown drew on Office for National Statistics data to warn that the self-employed were heading for a “pension catastrophe”, with “millions heading towards retirement with no pension savings to draw on”.
So here’s the rub. The usually securely-employed tax experts and economists who point to the tax inequalities appear to have little understanding of the risks, costs and strains faced by those who are self-employed or run small businesses. While the former group accumulates mega pensions, many self-employed must grapple with day-to-day mundanities like hoping a contractor pays up within six months so they can pay their own bills.
They don’t get a pension contribution from an employer. They don’t get life insurance cover. They don’t get sick pay. If they want a holiday they not only have to pay for it, they also lose income – so there’s a double cost. But highly-paid tax experts still look on jealously at the one perk they do have – lower NI payments.
As Mr McPhail points out, the self-employed now make up 15 per cent of the workforce, yet HMRC data suggests that fewer than one in 10 pays into a pension. Most people do not become self-employed to dodge taxes – many probably don’t even understand how their tax bills work. They take on added financial risk and assume full financial responsibility for their own lives and those of their families.
So if they want to consider the fairness of the tax burden perhaps they should stop targeting the slightly lower NI rate enjoyed by the self-employed and take a closer look at the 40% tax relief they and other high earners enjoy on their pension contributions.
Intergenerational finance
There’s a certain comfort in knowing we are not alone. So I was rather pleased to see a Legal & General survey suggesting that two-thirds of parents had provided financial assistance to adult children aged 18 to 40 over the past year.
It is astonishing how much has changed in a generation. When I left home at 19, that was it. I was on my own – and so were all of my friends. The idea of returning to the parental nest after higher education was unthinkable, as was the idea of expecting a handout or some other form of financial support. But now I can’t think of a single friend whose children haven’t bounced back after university.
Most have dug into their savings to help with house deposits and offer other financial support such as buying a car. Of course this all makes financial and emotional sense. Why not give them some money now so you can see them benefit and reduce any post-death tax bill?
My one concern is that this can lead to an impression that money pops out of thin air, which can lead to a rather Corbynist view of the world. Fortunately neither of my stepsons are infected by this – but I have come across plenty of youngsters who are happy to lecture their parents on the evils of capitalism while pocketing a handout for their next year’s car insurance.
Fast and loose banks
Suggestions that the levy towards the Financial Ombudsman Service (Fos) will probably increase because of plans to allow small businesses to use it have provoked predictable frustration in some quarters.
Once again the financial sector as a whole looks like carrying the can for the behaviour of the banks – in particular Royal Bank of Scotland (RBS).
It has been widely reported how the executives responsible for its deliberately pushing businesses over the edge have ended up in top jobs with other banks. So the pollution in the sector spreads.
Small businesses clearly need recourse to Fos. If this had been available then perhaps RBS might have been brought to heel more swiftly. But surely if there is to be an increased levy this should be risk-based and only apply to the sectors which handle large amounts of SME business.
That will affect some IFAs but history shows that whether it be flogging interest rate swaps or trying to send businesses to the wall it has invariably been the banks playing fast and loose with people’s financial well-being.
So by all means let the levy go up, but let the burden be placed where it belongs.
Tony Hazell writes for the Daily Mail's Money Mail section
