Last month, the Government published its response to Matthew Taylor’s review into modern working practices. It has also published four consultation documents to explore in more detail some of the review’s recommendations – employment status; increasing transparency in the labour market; agency workers; and enforcement of employment rights.
These consultations run until various dates throughout May and June and, as ever, I encourage members to make submissions.
It’s welcome that the Government is so positively engaging on reform of employment law; greater clarity on employment status and increased transparency of contractual arrangements for agency workers will bring long-term benefit to both businesses and employees.
More widely, there’s also a reassuring enthusiasm to acknowledge and work with the increasing flexibility in the labour market, including the ways in which people work and the changes in demand for and of labour. This will of course have fundamental implications for a shift in the tax base and how tax is collected.
It is, however, disappointing that their response contains no reference to reform of National Insurance Contributions (NIC).
This review set out with a very wide scope – in its own words, its ambition was that “all work in the UK economy should be fair and decent with realistic scope for development and fulfilment”. Whilst, admittedly, NIC was not within the original terms of reference, Matthew Taylor chose to include it after ICAEW and others convinced him of its fundamental impact upon modern working practices.
He went on to refer in his recommendations, to the “need to make the taxation of labour more consistent across employment forms”. We fully support this recommendation. As NIC costs have such a major influence on how labour contracts are structured, it is crucial that this is addressed. The Government, however, do not appear to share this sentiment.
Prior to last year’s Autumn Budget Statement, we wrote to the Chancellor to emphasise how the complexity of our tax code undermines confidence, acts as a regulatory burden on business, suppresses entrepreneurial spirit and inhibits economic growth. Furthermore, the spread of e-business models and the rise of the ‘gig’ economy are fast outdating the system. We called for an informed debate about what is a fair balance between the taxes - including NIC and the Apprenticeship Levy - paid by and for employees and those paid by the self-employed.
Whilst the Chancellor thankfully refrained from adding any additional bureaucracy, there was no signal of reform either. This review was the perfect opportunity, at a crucial time for our country, to reform and re-balance employment taxes. Sadly it appears to have been missed.
If this is not tackled now, an already deeply embedded problem will only continue to get worse.