SMF response to Budget 2017: the first act of a two act play
Responding to the Budget, SMF research director Nigel Keohane said:
“Since the financial crash, we’ve become accustomed to budgets dictating the tone and shape of political debate for months ahead. As the Prime Minister gears up to trigger Article 50, there is a sense in which the main event is now taking place elsewhere. Hammond’s fiscal policy adds weight to this view, with traditional giveaways swapped for conservative prudence. Nevertheless, we can still see the outlines of the Chancellor’s broader philosophy – delivering fairness through reform of markets.
“The reforms to self-employment have attracted much of the attention. His critics on the right and left say he’s breaking a manifesto pledge not to increase National Insurance, while conservatives wonder whether one of their own should really be increasing the tax rate on the self-employed. The bigger picture here is that he needed to confront the anomalies of today’s labour market.
“As we show in our work in this area, many self-employed workers face the downside of self-employment whilst enjoying precious little upside. The proposals thus far bring some political pain for not much Treasury gain – a net increase in revenue of £145m by 2021/22 – but the second act of extending the principle of fairness could bring political benefits, as self-employed people gain greater entitlements to what many of us take for granted in terms of sick pay and parental leave.
“His quest for fairer markets is another case in point. There’s clearly a problem – we’ve all been on the wrong end of a bad contract or expensive service. But past action has been too weak. If the Chancellor has the courage of his convictions here, millions could stand to benefit.
“And while he didn’t frame it in this way, the government’s overture on social care could address one of the great iniquities of our time – the question of why someone with dementia has to pay for their own care, while someone with another condition has their costs covered by the taxpayer.
“These are all huge issues which will require real political commitment if they are to be tackled. We will know more about the depth of that commitment when the Chancellor delivers his second budget of the year in the autumn.”
Self-employment reforms must address sick pay and low pay self-employed
Responding to the announcement in the Budget of changes to how self-employed people are treated by the tax system, SMF research director Nigel Keohane said:
“Reforming the way that employed and self-employed people are treated is a colossal change to the tax system.
“Parental benefits may be a popular place to start to bring in parity for the self-employed but entitlement to sick pay is just as crucial.
“The self-employed are half as likely to take sick days as employed people and they often cite lack of sick pay as a problem.
“Employer National Insurance Contributions at 14% remain the ‘elephant in the room’. As these get addressed, the Government must address the impact on the 45% of self-employed workers who earn less than the equivalent of the National Living Wage.”
Fairer markets reform must be more radical
Responding to the announcement in the Budget of a green paper on fairer markets, SMF research director Nigel Keohane said:
“Previous attempts at making markets fairer have failed to be radical enough. The new green paper must tackle the underlying problems in many markets – that consumers aren’t motivated to shop around and struggle to compare deals when they do, and that poorer people too often get the worst deals.
“Households spend up to 40% of their disposable income on a few essentials, including energy, insurance, telecoms, water and health services.
“Just as consumers may get ripped off when a subscription ends, many get ripped off when they don’t test the market.
“The government should look at automated switching and innovations like reverse auctions which remove the burden of switching from the consumer.”
Chancellor’s good news shows importance of migration to UK economy
Responding to today’s Budget speech, SMF economist Kathryn Petrie said:
“The positive employment story that the Chancellor was able to tell today shows the importance of migration in creating jobs and providing skills to the UK economy.
“Today’s OBR forecast to 2022 predicts that employment will rise by 0.7 million, with around three-quarters of this coming from net inward migration.
“As well as boosting British workers’ skills, politicians should be straight with voters about our continued need to remain open to migration.”