The chancellor hasn’t finished fiddling yet

The self employed shouldn’t relax yet, says Merryn Somerset Webb. One way or another, Philip Hammond will be back to tax them.


Philip Hammond: he'll be back
(Image credit: © 2017 Bloomberg Finance LP)

So much for Philip Hammond's Budget surprise. His small attempt to bring the tax paid by the self employed in line with that paid by the employed (its all about fairness) has lasted all of a week.

The well-off self employed will be thrilled, of course (see my previous post on this). But I'm not sure they would be wise to relax. Hammond's efforts, however feeble they might have been, make it clear that Westminster has finally grasped that the narrowing of the tax base thanks to rises in the personal allowance, tax credits and self employment simply isn't sustainable.

That makes this no more than a stay of execution. The self employed do pay less tax than the employed, despite now getting similar benefits and that is unlikely to be left to stand.

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The cut in the dividend allowance took aim at the same group as the National Insurance (NI) rise (albeit with quite a lot of collateral damage) and the changes to the flat-rate VAT rate have done much the same (more on this in MoneyWeek in a few weeks, but all you need to know for now is that the flat rate system actually allows some of the self employed to make a profit out of paying VAT!).

So, what next? Perhaps some change to business property relief, says NFU Mutual. Perhaps more fiddles with VAT, more clampdowns on expenses claims or perhaps, suggests George Bull of RSM, a new campaign on the "elephant in the room": tax evasion.

The shadow economy (something it is clearly easier for the self employed than the employed to operate in) costs the government well over £11bn a year. Why not invest more in trying to cut it start perhaps with some more amnesties for anyone wanting to come clean?

Finally, the self employed might like to prepare for an extension via the tax system of pensions auto-enrolment (that they don't have the same pension provision as the employed, while not a responsibility of the taxpayer, is clearly a matter of concern for the welfare state). This won't look like an NI rise but it will effectively be one.

As I say, best not relax Hammond might not have found his solution yet but he's definitely identified his problem.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.