Set the gig economy free to grow

published 15 October 2016

815-city-view-b — In the UK, some 14 million people work outside a nine-to-five set-up

Whether it is selling a few things on eBay, renting out a room on Airbnb, or working as a full-time freelancer, more and more of us are now working in the gig economy. If you include people who do a bit of trading on the side and the traditional self-employed, around 14 million people in the UK have some kind of work outside the traditional nine-to-five, according to consultants McKinsey.

That's close to half the total 31.5 million people in work in the UK. The good news is that the government is starting to take notice of this shift. Theresa May has appointed Tony Blair's former aide Matthew Taylor to report on how to help the self-employed. However, the government must resist attempts to get gig workers into insurance schemes, or to unionise them, as many on the left would like. Instead, here are four key reforms that would help.

First, allow the self-employed to hire one extra person free of National Insurance charges, or any kind of employment law beyond minimum health and safety standards. The barrier between having zero staff and one person is huge take on just one person and you suddenly have a hurricane of regulations to obey and taxes to pay. Hence many self-employed people end up working too hard because they don't want to turn away clients, but they also don't want the hassle of becoming an employer. Allowing them one assistant would help a lot and if just 10% of them took it up, it would create almost half a million new jobs.

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Next, raise the VAT threshold from £83,000 to £142,000. No business turning over less than the prime minister's salary should have to register for VAT, with all the paperwork that involves. There are lots of self-employed people who decide to limit the amount they earn to stop themselves breaking through that barrier and that stops them from growing their businesses.

Third, cut them in on tax breaks, without all the work involved in becoming a company. The UK has done a lot to make itself an attractive place to set up a company. Corporation tax will fall to 17% by 2020, the lowest of any major economy. The 10% rate of capital-gains tax for entrepreneurs is lower than anywhere, apart from a few tax havens. But none of that is available to the self-employed even if many of them are just as entrepreneurial. So how about creating a new category of a "single person company", with no reporting requirements to Companies House, and no requirement for a formal audit, but still benefiting from lower corporate taxes? That would help a great deal.

Finally, we should simplify working from home. For example, there is no reason why only a percentage of home office expenses should be tax deductible allow anyone working from home to claim the majority of their costs, just like any other business can. Sure, there will be some expensive claims a lot of pricey furniture might suddenly be a requirement for the home office. But so what? They are contributing a lot of tax revenue, and there is no reason they shouldn't get a few breaks as well.

The gig economy is one of the great growth stories of the decade. It is creating jobs in a way that no other sector can right now. But the self-employed are escaping the restrictions and rules of corporate life. The last thing we need to do is wrap them up in new structures. Health and pension schemes, maternity cover, and all the rest of the paraphernalia of big company life are largely irrelevant. Give them the freedom to develop their own careers and the economy will rapidly reap the rewards.

Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.

He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.