Only time will tell if contractors forgive Labour for dreaded IR35

Do any of the three main political parties really understand the freelance economy? My answer to CUK this time last year, when the party conferences of Labour, the Liberal Democrats and the Conservatives were concluding, was unfortunately, no, they do not, writes Philip Ross, chair of the Labour Small Business Forum.

Since then, contract workers will be pleased to note that there has been some progress in the parties’ understanding. But before then, and ever since, there has been a perfect storm around limited companies, freelancing and other temporary work engagements, which is indicative of just how challenging policy-making for independent workers can be.

Labour’s ‘dreaded’ IR35

This storm was brought on by topical factors, but before identifying them and the resulting policy challenge, some consideration of the age-old scourge of freelancers – IR35 – is necessary.

Back in 1999, Labour had been lobbied hard by big business to remove the ‘unfair advantage’ that freelancers had and so introduced IR35. Yesterday, the Intermediaries Legislation was referred to by a staffing body’s policy chief as the most “dreaded” tax rule for today’s freelance contractors.

The political personalities that IR35 survived

In the early noughties, and as described in my book - Freedom to Freelance, the Tories played the role of the perfect opposition and huffed and puffed about IR35 until they got into power when the wind just went out of their sails. Gordon Brown never really understood it; Mark Prisk from the Tories did but got shuffled to Housing before he could make any changes and Vince Cable did bark about it years ago but now seems to show little bite.

Just as Y2K and the dot-com boom changed the IT industry with regards to freelancing, the recession is now altering the rest of the economy.

One example greets me every day at my local railway station, where there is a big poster advertising a new co-working space. Indeed, these spaces are opening up all over the country as more and more people are working freelance, often out of necessity. The growth these individuals are providing to the UK’s self-employed ranks seems to be in both the post-graduate and over 50s market.

Regardless of your age, if you are a new freelancer in 2013 your modus operandi is the subject of a discussion that has momentum, partly helped by the contractors’ trade group PCG. Maybe in the past, the group had put its faith in an incoming Tory government to solve all its members’ problems, but now it has gone back to winning the argument.

Officialdom still looks down on freelancing

Yet just as in 1999, many of those entering the independent labour market see freelancing not just as a stop-gap measure, but are learning the skills to make it long term. This is quite hard for such individuals, because both the tax and employment authorities turn their noses up at freelancing - it hasn’t really got the recognition of being a proper employment model. So people have to muddle through as Schedule-D self-employed, until they are told they need limited liability at which point they are viewed with suspicion when they set up a company.

These business self-starters, whether they jumped or were pushed, might be heartened to hear Ed Miliband’s declaration in his conference speech: “One Nation Labour – the party of small business.”

But is Labour the party for small business?

It may be hard to believe given that it is conference season, but Mr Miliband’s statement last week is less of an aspiration and more of an observation. Look at Labour’s small business team. Not just Chuka Umunna, the Shadow Business Secretary, who was raised in small business household and set up his own magazine, but also Toby Perkins and Ian Murray, who both ran their own firms before entering Parliament.

Their participation or support in the Labour Small Business Forum, which I chair, enabled some hearty debate last week on the party’s conference fringe, often in the spirit of Mr Miliband’s assertion in his speech that “for too long in this country, we’ve supported some businesses and not others.”  

In particular, the fringe event’s focus was how small firms, freelancers and the self-employed can flourish. So we explored funding, mentoring, late payments and freelancing. Professor Andrew Burke, of Cranfield University, who has written extensively about freelancing and the self-employed, was one of our speakers.

System exploited, system exploiting

When he spoke, I was compelled to draw a line on a piece of paper I had set aside to take notes on. On one side of the line I wrote ‘Student Loans boss – BBC’s regulars via service companies - Tax avoidance.’ But on the other side of the line I jotted ‘Bogus self-employment - Zero-Hours contracts - Exploitation.’

These six are the topical factors I mentioned at the outset of this piece. They have come together to form the perfect storm with freelancing and temporary work in the middle. In short, at one end of the spectrum, there are people exploiting the system and at the other end, there are people who are being exploited by the system. On my piece of paper, I circled the area in between – this represents the legitimate freelancing market - it both deserves and requires recognition. That is the policy challenge, and it faces whoever wins at the general election in 2015.

The mere existence of this two-ended spectrum proves to me that freelancing has gone beyond the wage-rich sectors of IT and engineering. So it is no longer safe to say that all freelancers command large fees. Indeed, many I suspect could be termed as the ‘precariat’ and the needs of this precariat may differ from those higher up.

Little room for one-size-fits-all in a modern, freelance economy

Fortunately, Labour seems to be aware that a ‘one-size-fits-all’ approach is not generally going to work or reflect the diverse independent business population at hand. One example of the party preferring a tailored approach is Mr Umunna’s decision to ban his team from using the phrase ‘SME,’ because he considers it to be too broad a definition of small firms, encompassing as it does the self-employed right up a 250-strong enterprise.

The question I’m often asked is whether Labour can win votes solely on its offerings to independent workers. It certainly seems to be reflecting on its past as the party of mutual self-help and co-operation. And while last year I wrote for CUK that freelancing has at least properly popped up on Labour’s radar, this year I can say that the party is starting to ‘put boots on the ground.’ There is, however, a way to travel yet and battles still to win.

Ultimately, the UK government, of whatever political hue, must explicitly commit to freelancers because the modernisation of our economy dictates it. To that end, I would personally be contented if the Lib Dems and Tories came in behind such an agenda too, as then we would - to borrow Mr Miliband’s phrase - have a real “race to the top.”

The author is a former PCG director.

Editor’s Note: Further Reading on the main party conferences -

Contractors emerge unscathed from Lib Dem conference

IR35 Forum urged to simplify contractor taxes

Oct 02, 2013