Employees are paying for a system the self-employed despise
The self-employed currently pay much less tax than employees earning the same money. Take a salary of £39,000 — close to the median wage. As an employee, the Exchequer takes roughly £12,500. Do identical work as a sole trader, and now HM Treasury only takes £6,900.
This discrepancy costs the Treasury more than £10 billion every year — money ultimately coming out of the pockets of employees, paying for a system which the self-employed themselves would rather not have.
A few decades ago, the self-employed received far less help from the state, so they contributed less and drew less. But the terms of this deal have since changed. Entitlement after entitlement has been extended to the self-employed until the value of the aforementioned tax advantage now exceeds the value of the benefits that the self-employed forgo by more than 1400%.
None of this has made them prosperous. Most have a harder time of it than the average employee. The self-employed take home 12% less after tax than the typical employee, and more than a quarter of them aged 50 to 64 have put aside nothing at all for retirement. They are struggling to make ends meet: according to our original polling, the self-employed are 43% more likely to be focused on keeping their head above water than on growing the business. 61% carry no insurance of any kind — not life, not health, not income, not sickness. One in five draws Universal Credit.
As you might expect, they are not happy with it. The self-employed are over twice as likely to say that the benefits of being self-employed make up for the missing protections which employees receive but the self-employed do not than they are to say the opposite. Employees are subsidising the self-employed to the tune of £10 billion a year to prop up an arrangement the beneficiaries would happily be rid of.
The answer is to tax every kind of work on the same terms, and to raise protections for the self-employed accordingly across the four areas they miss out on most: parental pay, income protection, sickness and retirement.
The disparity at the moment is serious. A self-employed father, for example, gets nothing whatsoever when he becomes a dad; a self-employed mother likewise gets a fraction of what her employed counterpart receives. Protections in the other three areas are similarly lacking, and even though their value is far outstripped by the tax benefits, the self-employed both in our polling and the focus groups we ran expressed a deep-seated frustration at a system they perceived as profoundly unfair towards them and privileging employees.
Levelling the tax burden would, unavoidably, mean the self-employed paying more. But it could be paired with tax relief for employees, as the tax burden would be spread out more equally. Ten billion pounds would be enough to abolish the additional rate of Income Tax outright, or to knock five points off the higher rate, even after handing the self-employed a safety net as good as the one employees enjoy.
You may still be unconvinced. Welfare, you will say, is the last thing that deserves another penny. But if the case for equal taxation holds — and it does — then protections for the self-employed have to rise alongside it. Otherwise we would be stitching up precisely those people on modest incomes who are already scraping by.
In any case, there are good reasons to maintain some basic social security protections for all workers. Sick pay, for instance, lets people recover properly instead of dragging themselves back in, infecting colleagues and taking up hospital beds in the long-term, ultimately costing the taxpayer and their own long-term productivity. The self-employed barely ever take sick leave — barring the 8% who bought sickness insurance.
Every employee ought to be furious at this. Most self-employed people already are. Let's tax all work alike, give employees a break and give the self-employed the deal they actually want.
Bartek Staniszewski is the Head of Policy at Bright Blue and the Director and Co-Founder of Bright Blue Europe. He graduated with a BA in Philosophy and Theology from the University of Oxford in 2021 and with an MSt in Philosophical Theology in 2022. There, he sat on the editorial board of the Journal of the Oxford Graduate Theological Society. He has been featured, among others, in the Guardian, the Telegraph, the Critic, City A.M., the Spectator and on the BBC and GB News. He is the author of numerous think-tank reports, including on political philosophy, housing, young people, social security employee ownership and inequality. He is also an IPR Policy Fellow and the Editor-in-Chief of Centre Write magazine.
