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Why are the Tories using coronavirus as a chance to launch a tax raid on the self-employed?

Rishi Sunak at his press conference this afternoon
Rishi Sunak at his press conference this afternoon Credit: PIPPA FOWLES/ AFP

What a nasty sting in the tail. Rishi Sunak’s announcement of a scheme to support the self-employed through the coronavirus crisis was going so well – the self-employed will be able to apply for grants equivalent to 80 per cent of their average profits for the past three years, echoing the scheme announced last week for employees. As with the scheme for employees, payments will be capped at £2500 per month.

But then came the sting – or two stings. The scheme will only be available for self-employed people with taxable profits of up to £50,000 – which will exclude many previously successful electricians, plumbers, musicians and the like. 

The second sting was that the Chancellor appeared to use the opportunity to announce a tax rise further down the line. Given that the self-employed are going to be bailed out in line with the employed, he suggested, it was ever harder to justify the self-employed paying a lower rate of National Insurance compared with employees. 

At present, the self-employed pay a rate of 9 per cent on earnings between £8,632 and £50,000, while employees pay 11 per cent. Three years ago the former Chancellor Philip Hammond attempted to raise rates of NI for the self-employed, only to be beaten back by protests from this five million-strong army of predominantly Conservative voters.  As pointed out at the time, the self-employed do not qualify for the same benefits and so on as employees – a point underlined by the fact it has taken the Government an extra week to come up with some support. While the scheme announced today might echo the help for employees, the self-employed will continue to have less access to sickness benefits and the like.

If you are a self-employed worker with taxable profits of more than £50,000, in other words, Rishi Sunak offered you no help through the coronavirus crisis – only the prospect of a tax rise further down the road. Gee, thanks. Maybe the result of the coronavirus recession is that we will all have to pay more tax – either that or lumber our children and grandchildren with picking up the tab. But it is an odd decision for the Chancellor to use today in order to announce a tax rise for people who had tuned in with the expectation of some help.

If Sunak really does want to equalise tax arrangements between the employed and the self-employed, by the way, does he intend to remove the requirement for the self-employed to charge 20 per cent VAT on their services and hand it over to HMRC? Employees don’t have to do this. Far from raising NI for the self-employed, Sunak should be looking to phase it out and replace it with a simple income tax which applies to all income when it has been earned through employment, self-employment or through returns on investment. That would be the fair thing to do in the longer run.

Instead, there are going to be some very angry self-employed people, who have lost good incomes through no fault of their own. They are a group the Tories cannot afford to upset.