A letter from George Osborne to the self-employed

Earlier this week the RSA hosted a summit to explore the causes and consequences of the rise in self-employment. What is driving the boom? Is it a good thing to be self-employed? How does it affect the nation as a whole? And how can we help the self-employed to flourish?

We had a stellar line-up of speakers: Rohan Silva, Emma Jones, Will Hutton, Vicky Pryce, Geoff Mulgan, Tom Hodgkinson, Stella Creasy and Jo Swinson – to name just a few.

Unfortunately, the one person who couldn’t make it was George Osborne. But fear not – I opened my inbox this morning to find an email from the Chancellor himself, setting out his thoughts on the self-employment boom and how the government plans to support this community in the future.

I’m sure you’ll agree it’s a candid and revealing letter.*

To: Benedict Dellot

From: George Osborne

CC: Vince Cable; Matt Hancock; Chuka Umunna

RE: Where next for self-employment policy?

To everyone at the RSA’s Self-employment Summit

Apologies for my notable absence yesterday. I wanted to join you but, what with the fallout from the Greek election, my attention has inevitably been elsewhere.

However, I still wanted to say a few words regarding our stance on self-employment, such has been the magnitude of the recent increase.

It will not come as a surprise to hear that the Conservatives, like Labour and the other parties, back small businesses. Not only do we recognise your contribution to the UK economy, we also understand how much it means to many of you to work for yourselves.

Yes, we know there are disagreements over the causes of the self-employment boom, with many believing that it has been driven largely by need rather than opportunity. But the evidence is unequivocal: the vast majority of people enjoy working for themselves.

Indeed, to say that the recent increase in self-employment has only come about because of the recession ignores the fact that this community has been growing nearly every year since 2000 – long before the crash of 2008.

So let’s be clear: we are behind small businesses. It’s why we created the StartUp Loans scheme, to channel low-cost finance to small firms. It’s why we have cut or amended over 3,000 regulations, to let you get on with what you do best. It’s why we cut corporation tax, so you can keep more of the money you’ve worked hard to earn.

But I know we can’t stop there. We have to be honest and recognise that most of what we’ve achieved so far has been focused on supporting businesses, rather than the individuals that sit behind these businesses. There is a danger that we’ve paid so much attention to helping businesses become profitable that we’ve forgotten how to make self-employed lives liveable.

It is true that we have opened up the single-tier state pension to the self-employed, which will make a world of difference in the coming years. But I’ll be the first to admit that we haven’t said much when it comes to the other big issues, whether that be welfare, savings, insurance or mortgages.

If we’re being truthful, we’ve actually been doing damage in these areas – going backwards rather than forwards. The introduction of Universal Credit is a case in point. We clearly did not pay enough attention to the self-employed when the scheme was first designed. And the result is that we are now having to backtrack and make tweaks to our flagship welfare programme.

This tells you something about the inner workings of government. I said at the beginning that policymakers want to help the self-employed, but this isn’t strictly true. While No. 10 and BIS back you, the teams at HMRC and DWP are ambivalent at best and hostile at worst. That is because their goal is not to help people start up in business, but rather to bring taxes in and cut welfare costs.

Which brings me to my ask of the self-employed. I want to do what is best for you, and to enable you to thrive and prosper – whether that is by opening up Statutory Maternity Pay or giving you access to the new Fit for Work service. But let’s be honest – I can only do so much while the self-employed continue to enjoy preferential tax rates – specifically, lower National Insurance contributions.

So here’s what I’m going to do. I’m going to extend welfare protections by giving you access to more contributory benefits (not just means-tested ones). But in return I’m going to increase the national insurance rates to sit on a par with those of employees. And to make sure the lowest earners are least effected, I’m also going to raise the threshold at which the tax kicks in.

I know this move won’t be immediately popular, and it certainly isn’t a panacea. But creating a new tax and welfare settlement is something that has to be done for the long-term benefit of those who work for themselves. While some people may see this as a step backwards for the self-employed, it should be seen as exactly the opposite – a sign that this form of work is finally being taken more seriously.

Paradoxically, this is perhaps the best step that can be taken to improve the living standards of the self-employed.

Anyway, I’ve said too much already. But believe me, those are my honest thoughts.

Yours sincerely

George

P.S. I love the RSA's work

P.P.S. Look out for the RSA's upcoming report on the living standards of the self-employed

* This is a (humourless) parody letter