We note from Government figures that they claim the numbers of people claiming to be Self Employed / one man companies is rising and this means that the public have so much growing confidence in the economy that they are willing to start their own businesses. This is not a view that we share; in fact it is one we openly mock.
In previous years you would not dream of claiming to be self employed unless you were a) Mad or b) genuinely self employed. The reasons for this are that you would struggle to get loans or mortgages, struggle to get time off and struggle to get benefits. There is little upside to claim to be self employed when you were not.
What we are finding these days is that there is an increasing number of people who are claiming to be self employed when they are not – or at least – wouldn't have claimed to have been self employed for doing the same job just 5 years ago.
We find people claiming to be self employed in order to claim working tax credits. For someone to claim working tax credits they need to be working x amount of hours per week. As some employers have been cutting back hours, workers have been losing that pay – in addition to this they are also dropping below the level of hours worked per week in order for them to be able to claim working tax credits – a double whammy.
They claim to work an extra 10 hours a week to add to their part time job where they only get 25 hours and bingo they now work over the minimum level of hours needed to qualify. Who checks that they are really working these extra self employed hours – nobody!
Just what else is happening then?
The tax credits issue is probably a smaller part of what is going on; the bigger part is much more worrying.
What we believe is happening is that employers are no longer willing to hire people to do certain jobs and instead asking them to leave and become self employed in order that they can then hire their services back as though they were never an employee but instead as though they were outsourcing that task to a different company to do.
Here is an example of what we mean. Several years ago companies would employee HGV drivers directly. Drivers would have their PAYE paid by their employer; they would get holiday and often sick pay. They would be entitled to redundancy pay and other benefits if things went wrong.
What we are finding now is that a growing number of haulage firms are only willing to have drivers work for them if the drivers take the status of a Private Ltd company; often that company has to register for VAT in order for the haulage firm to recover this portion. The benefits to the haulage company of using the driver as a private company rather than employing them directly is that they don’t have to pay employers National Insurance for them, the company never gets sick and therefore doesn't have to pay sick pay, nor does it have to pay other benefits such as paternity pay, holiday pay etc. They can hire and fire without fears of tribunals.
This appears to be happening a lot these days; in fact it appears to be accelerating. Other sectors that are heavy affected include the taxi sector where drivers are often actually working for as little as £4.50 an hour, despite the minimum wage being £6.70. The truth is that taxi companies just cannot afford to pay their drivers £6.70 an hour in addition to all the employee benefits the government asks them to pay. They would quickly be put out of business by others undercutting them by using self employed drivers to evade the minimum wage.
Why is it happening now?
That is a good question, what we think is happening is that employers are no longer willing to keep paying the Santa Claus gift list that the government is ordering employers to pay. Things like paternity pay and a fantasy land minimum wage increase are convincing employers that employing people on a company to company contract basis is the best way to go compared to the risky costs of direct employment. We have some empathy with this. There is little incentive for anyone to employee people directly these days. The risks are high and the rewards are slim.
The crazy thing is that the Government also lose out of this; they won’t receive employer’s nation insurance payments. This will ultimately hit them in the pocket too.
What we are heading for is a self employed economy, not where entrepreneurs take to running their own new competing businesses, but instead where people are forced to sign their protection away in order to keep working below the minimum wage, without employment rights and without any protection from anything.
What we as lenders have to do is adapt to change our criteria towards the self employed, that will also be a challenge for us.