Govt rejects opportunity to raise social care funds by strengthening employment law

The government today rejected an opportunity to raise a potential £7.8 billion from tax shirking employers at the Second Reading of Lord John Hendy QC’s Status of Workers Bill.

Almost all peers – including Conservative, Green and Labour Party members – who took part in the debate were supportive of the Bill’s proposals to replace the UK’s overcomplicated employment status system with a universal status of ‘worker’.

This move would ensure all people in employment, who are not genuinely self-employed on their own account with their own clients or customers, are eligible for equal employment rights.

Currently, a person in employment may be legally defined as either an ’employee’ or ‘limb (b) worker’, with ‘limb (b) workers’ receiving only the bare minimum of employment rights.

People in work might also be ‘self-employed’ and therefore eligible for no employment rights. But currently the legal test for whether a person is a ‘limb (b) worker’ or ‘self-employed’ is something of a grey area that has led to years’ long court battles between employers and their workforce.

This confusion has given rise to a trend of unscrupulous employers miscategorising their workers as ‘self-employed’ in order to avoid both their workers’ rights obligations and their tax obligations.

A House of Lords briefing on the Status of Workers Bill estimated that £7.8 billion is lost every year through non-payment of National Insurance Contributions on workers in bogus self-employment.

This comes in the week that the government announced it would press ahead with its plans to raise money to rescue the social care sector by increasing National Insurance by 1.25% – a proposal that has been widely criticised across the political spectrum, as the burden will fall on young people.

At the Second Reading of the Status of Workers Bill, The Lord Bishop of St Albans pointed out that the £7.8 billion lost to bogus self-employment “does raise a prescient questions about whether strengthening employment laws could raise some of the shortfall in National Insurance the government hopes to receive by its proposed 1.25% levy”.

The levy on National Insurance hopes to raise £11.4bn alongside £600 million through a 1.25% uplift on shareholder taxes.

Despite this and calls from all sides of the House urging the government to take the proposals of the Status of Workers Bill on board, the government rejected it.

Lord Callanan, speaking for the government, said: “I believe that creating a single worker status would inevitably stifle the flexibility and the dynamism of the UK labour market when it is most needed to help the economy recover from the pandemic.”

The Bill has now passed to Committee Stage where it will receive more detailed scrutiny and peers may propose amendments.