Capitalism is empowering - so says the HMRC

A quick take as all the media speculation today is that Philip Hammond has a nice strong hand to play in the Spring budget statement.


Government spending, relatively, has been kept under control during austerity and finally, ten years after the crash, it seems as though the public finance are finally in a better state. Of course, we now have around 70% more debt as a nation (from one trillion to £1.7 trillion since 2010), but at least day to day things are looking better.


The main driver for this though is not growth. The UK economy has been OK, but not very inspiring for a number of years. Low productivity compounded with excess labour supply has given the feeling on expansion whilst the currency decline has hidden some of the downsides of the wages squeeze relative to the world.


So with little growth, how come the Government is able to balance the books? Austerity is only a part of it. The Government spends less now than it did in 2010. Back when the Tories took office, spending was £715 billion by the Government, not it is £707 billion for the year. If you think about years of inflation added to that original figure, then the fiscal squeeze over what was being spent is around £200 billion per annum. Even if you take the pre-crash spending, there is still nearly £70 billion of expected spend missing.


However,  the big jump in the last year still is in income taxes. these have risen by nearly 10% in the past three years. Much stronger than GDP growth and inflation would suggest. The main driver of these is self-employment taxes. These were super strong this year, which has allowed the Government some fiscal wiggle room.


For me the takeaway is that the move to self-employment gets people creative and innovative and in the end they end up working harder, earning more and paying more taxes. The days of mass manufacturing and mass employment meant that (say today as per the NHS) collective bargaining limited opportunities for people to keep any benefits of harder work. In today's world, working harder pays better; yes there are issues with Uber etc effectively increasing supply to markets and reducing pay - but the fact that individuals can do something about it is both capitalistic and also rewarding - both them and the Government.

Education wanted re NIC & self-employment

OK - So I get the furore in the newspapers about this 'awful' Tory budget. A big part of me thinks the papers just see budget now and go looking for disaster, after the omnishambles budget of 2012


But genuinely, some of the readers here must be self-employed. How much is this hit going to actually cost you? I just can't see the hit outside of taking away egregious tax benefits.


How big is this storm - a teacup or a hurricane.


As pointed out yesterday, the issue is we cannot trust the press as they are made of many people who are affected by this change directly to the sense of proportionality is lost in a way that say a change on capital allowances would go totally unnoticed.


For example, Business Rates has been a big theme running pre-Budget - but as soon as journalists income is potentially hit, out this goes an in comes RAGE (as written by Sarah Vine).


Personally, many people I know earn a living through self-employment. They try optimize their earnings to around £40k per year. Between expenses and dividends, make their wives/husbands directors etc, contributing to pensions etc, they manage to pay no tax at all, bar NIC's which they need for their state pension entitlements. Their is no contribution at all to the state in real terms.


In a PAYE job to net £40k you would need to earn £63k. This gap at a base level is c.57%.


5 weeks holiday (which the company pays for, not the Government) is worth 10% of wages, so that would take the PAYE earnings needed down , plus pensions contribution from employer perhaps another 5% and other bits add can on another 1 or 2%. So being generous let us say it is worth 20% overall to be employed.


That still leaves a huge gap and also, not unimportantly, a big hole in revenues for the Government. We have not even considered employers NIC here. No wonder employers are keen to get everyone onto consultancy and zero-hours contracts. Self-employment, even up to a mid-level of income is a huge issue for the Government. As the gig economy kicks-in I can quite see why the Government is going to make a stand on this issue.


If only MP's would think of the numbers rather than the headlines.

UK Self employment - nothing to be pleased about?

To continue yesterday's theme, here is a view expressed of the Left in the Guardian of late.

I can quite see from the links there that there must be some correlation to people seeking to keep benefits and not wanting or being able to do jobs to become 'self-employed' as a way of keeping most of the benefits. This would account for a big jump in the self-employed whilst a the same time the benefits bill is not dropping. To this extent perhaps employment is not so healthy.

On the other hand there are many figures suggesting that income from self-employment has dropped. This may be linked to the above if you look at averages, but also it corresponds to key tax issues - such as the few business that turn over more than £80k which would mean they paid VAT.
As an example of this there was the hairdresser named and shamed in 2013 by HMRC for not declaring income.

Either way, it is an interesting thought for me. I am all for self-employment as part of self-empowerment. But with the way the tax and benefit system has been structured, it either seems to be a route to access benefits or a route to dodge taxes; neither of which is a very good result for the Country as a whole.

The unemployment/wages conundrum

(Apologies for the slight break in service, both Messr's Drew and Cityunslicker have been travelling a lot over the last week...normal service now resumed. Thanks to Mr Q. for filling in, pity he was again overlooked in the re-shuffle)

So today we have good employment numbers, with unemployment down to 6.6% (Germany is at 6.5%, USA at 6.3%, Canada 7.1% , Holland 7.2%, Sweden 8.3% France 10.4%, Italy 12.4%). The UK is well placed in the Western world in terms of unemployment rates overall. The levels have come down significantly in the past year and continue to do so. With a 4% probably around the lowest  any economy could sustain (even China has over 4% and Japan too), the UK is on track to get back down in the next few years to the trend rate of 5.0%.

Which is great news for the Government. However there is a big BUT coming. Wage growth has fallen back again to only 0.3% this month. There is simply no pressure on employers to have to pay more for their staff, even if supply is tighter, clearly in many sectors this is not enough to actually engender any wage inflation.

Again, the core reason for this is the increase in self-employed workers. This can skew the statistics, as self-employed people on the whole earn less than employed people. Reality of course tells me something different. Self-employed people are able to claim all sorts of expenses and costs, as well as potentially take cash in hand payments. Many industries with high earning workers like IT have gone almost entirely to a self-employment consultant model. The companies gain great labour flexibility and reduced taxes. The workers lose rights but gain in taxes and flexibility too.

This may well be the model of the future, however it also leads to downward pressure on wages as a per day rate or per hour rate is hard to negotiate on an individual basis - after all, this is why Unions rose to prominence in the first place!

Also some very under-employed people are likely to call themselves self-employed for their own needs of self-esteem.

No doubt overall there is more work available as the economy grows, but how this is shared out and how much tax people want to pay on their earnings is there for all to see.