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Budget Resolutions - Amendment of the Law

Part of the debate – in the House of Commons at 8:35 pm on 13th March 2017.

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Photo of Rosie Winterton Rosie Winterton Chair, Finance Committee (Commons) 8:35 pm, 13th March 2017

I listened carefully to the contribution from Maggie Throup, who brought her personal perspective and that of her constituency to the debate. But it is more than clear that the Chancellor will have to rethink his plans for national insurance contributions for the self-employed not only because he is widely seen as having broken a manifesto commitment, but also because his scheme has been devised in such a cack-handed way that it looks as though those with the lowest earnings will be the hardest hit.

My hon. Friend Owen Smith estimates that a large number of low-income families whose main earner is self-employed will see their income fall by a sixth. I welcome the fact that the Chancellor’s plans are going to be re-examined and I support the call for an impact assessment of the changes, but I very much hope that the Chancellor will re-examine his plans in the context of the much wider problems of insecurity at work. I hope the Chancellor will put his review alongside the work being carried out by Matthew Taylor, which was referred to previously in the debate and in the Brexit White Paper. It is a clear example of where economic policy should be aligned with policies and negotiations on leaving the European Union, even though the Chancellor failed to mention Brexit in his speech. There has been a huge growth of insecure work in recent years, whether that is in low-paid self-employment, insecure temporary work through agencies, casual or seasonal work, or the explosion in the number of workers on zero-hours contracts.

Staff at the Department for Work and Pensions office in Doncaster tell me that whereas one or two companies would have been using zero-hours contracts 20 years ago, it is now almost the norm for many of them. The number of self-employed nationally has risen by about 1 million, and the number of workers on zero-hours contracts has risen by about 700,000. Insecure work is bad for workers, families and our communities. And, as the Chancellor must recognise, it is bad for the Treasury too, as it is punching a massive hole in the public finances. Zero-hours contracts cost the Treasury billions because they lead to a lower tax take and higher spending on in-work benefits. Zero-hours workers pay significantly less in income tax and national insurance contributions than people in more secure employment. A recent study by Landman Economics shows that this has created a £1.9 billion hole in the public finances. It says that the true costs are higher still, as those on zero-hours contracts are more likely to need to rely on in-work benefits such as tax credits and housing benefit.

Overall, the TUC has estimated that over the past decade there has been a net loss to the Treasury of £5.3 billion due to insecure working—equivalent to just over a third of the social care budget for England, as set out by my hon. Friend. People in insecure work tend to be paid lower wages. Some employers use zero-hours contracts or bogus self-employment to manage their financial risk and leave the public finances to pick up the bill. Inevitably, employers who prefer to keep employees on insecure contracts are the least likely to invest in proper skills and training, which is again bad for our overall economy and has a huge impact on productivity.

As well as the increased use of agency staff by employers, there has been a growth in employers encouraging workers to set up as a limited company. This bogus self-employment has a knock-on effect on other parts of the economy. Last week, one of my constituents told me of the experience of her and her partner when trying to get a mortgage. She said:

“My partner went from working as an agency worker to being a limited company: however he remained working for the same company on the same if not higher wage. This meant getting a mortgage was particularly difficult as we were unable to use his wage as income as he didn’t have enough years limited company accounts, despite the fact he remained at the same company for 2 and a half years and it was just the way his wages were paid which had changed. Neither of us had any other outstanding credit and we had saved 25 per cent of the house price.”

Her father acted as guarantor, and that was the only way she could get a mortgage. Insecurity at work affects the whole of our economy, and the Government should tackle its root causes. They should strengthen legal protections for workers on zero hours and clamp down on bogus self-employment and agency employment.

This is not only a UK issue; it is affecting other EU countries, as well as EU migrants in this country, who are often kept in insecure, undercutting work. That is why having a proper review of this area, and linking it to how migration between the UK and the remaining EU countries post-Brexit will operate, is something the Government should get on with as a matter of urgency.