Gig economy costs UK £4bn a year in lost tax: unions
The gig economy is costing the UK government nearly £4bn each year, according to research carried out by consultancy Landman Economics for the Trades Union Congress. The increasing numbers of low-paid, self-employed and zero-hours workers in the country means that less tax and national insurance is being contributed to the exchequer by employees, who are also increasingly reliant on in-work benefits. The loss equates to over £75m a week or 25% of England’s social care budget. The number of self-employed workers in the UK has risen by 26% over the past decade to 4.8 million, or 15% of all workers.
Tuesday 14 February 2017: For immediate release

- Treasury losing more than £75m a week through explosion of low-paid and insecure jobs

- Rise in zero-hours contracts and low-paid self-employment has led tax shortfall and higher in-work benefit payments

The growth of insecure employment– those working without guaranteed hours or baseline employment rights – is costing the Exchequer an estimated £4bn a year, according to a new TUC report published today (Tuesday).

The rise in low paid self-employment accounts for just over half (£2.1bn) of this bill, with the government collecting billions less in income tax and National Insurance contributions. And the surge in zero-hours working has left an additional £1.9bn hole in the public finances, says the study.

The report uses tax and benefit modelling to show the impact of the growth in insecure work since 2006. It shows how the growth of low-paid self-employment and zero-hours contracts has led to a fall in government revenues because:

Low-paid self-employed workers and those on zero-hours contracts earn significantly less than regular employees and therefore pay less tax and national insurance;

This also makes them more likely to need to rely on in-work benefits such as tax credits and housing benefit;

Even when the self-employed do earn as much as regular employees, the tax is structured so that they pay less.

This has led to a lower tax take and higher spending on in-work benefits. The report says that the total being lost to the Treasury from the rise in precarious working is more than £75m a week. This is the equivalent of more than a quarter of England’s social care budget.

The report warns the problem could get worse in the future. The TUC estimates that insecure working has grown by more than a quarter over the past five years and now accounts for 1 in 10 (3.1 million) UK workers.

The number of self-employed workers who are low-paid has increased by more than a fifth (21%) over the past decade, says the TUC.

TUC General Secretary Frances O’Grady said: “The huge rise in insecure work isn’t just bad for workers. It’s punching a massive hole in the public finances too.

“Zero-hours contracts and low-paid self-employment are costing the economy billions every year in lost tax revenues. That’s money that could be spent on stopping the crisis in our schools and hospitals and making sure every elderly person gets decent care.

“Bosses who employ staff on shady contracts are cheating all of us. That’s why we desperately need more decent jobs that pay a fair wage.

“Getting more people into unions is key. Workers in unionised workplaces are twice as likely to be on better-paid secure contracts.”

ENDS

Notes to Editors:

Fiscal impact of increased self-employment and zero hours contract (ZHC) working (£bn/year)

Self-employed (bottom 40%) Self-employed (ALL) ZHC employees Total (including bottom 40% of self-employed earners only) Total (ALL) Income tax -0.60 -1.09 -0.62 -1.22 -1.71 National Insurance -0.87 -1.58 -0.81 -1.68 -2.39 Benefits and tax credits -0.65 -0.77 -0.44 -1.09 -1.21 TOTAL -2.11 -3.44 -1.87 -3.99 -5.31

Self-employment broken down by quintile of weekly earnings

Quintile of weekly earnings % of self-employed people in earnings quintile (2006) % of self-employed people in earnings quintile (2016) increase in number of self-employed people 2006 -2016 (1000s) 1st (lowest) 20.4% 24.4% 240 2nd 11.7% 14.5% 170 3rd 7.6% 10.4% 277 4th 8.4% 9.8% 86 5th (highest) 10.5% 9.9% -36 TOTAL 11.7% 13.8% 737

- The report– is available at: https://www.tuc.org.uk/sites/default/files/insecureworkonpublicfinances.pdf

- A full appendix detailing the methodology is also available.

-The report uses modelling of the tax and benefit system by Landman Economics. It simulates the impact of the increase in self-employment and zero hours contracts since 2006 using data from the UK Family Resources Survey (FRS) to estimate the impact on income tax and National Insurance Contributions, and tax credits and in-work benefits received, for individuals in the FRS. The extent of the increase in self-employment and zero hours contracts is calculated using the UK Labour Force Survey (LFS).

- In order to estimate the impact of low-paid self-employment we have looked at the bottom 40% of earners within the self-employed.

- The table above also shows the fiscal impact of all self-employment on the Exchequer. This brings the total fiscal impact for self-employment to £3.4bn.

- All TUC press releases can be found at tuc.org.uk/media

- TUC Press Office on Twitter: @tucnews

Contacts:

Press Office T: 020 7467 1248 E: media@tuc.org.uk

Alex Rossiter T: 020 7467 1285 M: 07887 572130 E: arossiter@tuc.org.uk

Tim Nichols T: 020 7467 1388 M: 07808 761844 E: tnichols@tuc.org.uk

Michael Pidgeon T: 020 7467 1372 M: 07717 531150 E: mpidgeon@tuc.org.uk