The Left and trade union movement should champion the self-employed. While the Right gives promises of tax breaks, the self-employed need so much more: a stronger welfare state and public sector intervention to empower self-employed workers in the market place. Indeed, what the self-employed need is what PAYE employees need: social security and market strength.
Let’s do some background numbers. In Ireland, there are approximately 320,000 self-employed or 17 percent of total employment. Of these, 69 percent are own-account workers – that is, they don’t have employees. Throughout the EU-15, the self-employed make up 14 percent with the same proportion of own-account workers. In Ireland, nearly one-in-six in the workforce are self-employed.
Unsurprisingly, self-employed in the agriculture and fishing sectors make up a quarter of all self-employed. This is followed by construction and retail, with professional and technical self-employed making up 10 percent. There are smaller numbers spread throughout all economic sectors.
Not all of the above are self-employed by choice. There is bogus self-employment – where people are forced by employers to register as self-employed even though they are actually employees; this reduces costs for the employers (notably, employers’ PRSI) but reduces the rights and benefits for the workers (an explanation of this is here, dealing with the Rhatigan strike). Any progressive for self-employment must first ensure that employees are not forced into becoming self-employed against their will.
The Right are making a play for the self-employed vote by promising – you guessed it – tax cuts. PAYE workers get an additional tax credit worth €1,650; this was granted in the wake of the PAYE tax marches in the late 1970s when farmers’ taxation was a big issue. Fine Gael and Renua are promising the self-employed an equivalent tax credit to the PAYE tax credit. The recent budget made a start in this respect – providing the self-employed with an additional tax credit of €500 with more to come.
The irony is that this won’t affect a huge swathe of self-employed. NERI estimatesthat 48 percent of self-employed have incomes of less than €15,000. Many would be part-time (e.g. part-time farmers, second household income) but many are just struggling to make a decent income.
So what programme should progressives offer the self-employed? Let’s look at a sample.
- Unemployment Benefit: I’m often amused when conservative commentators talk about rewarding ‘risk-takers’. They rarely refer to the fact that the self-employed are not entitled to unemployment benefit. If they start up work but their business is unsuccessful (business failure is a common feature of enterprise activity), they have to rely on a means-tested programme which results in many/most self-employed being denied significant if any support.
- Illness Benefit: if a self-employed person becomes sick they are not entitled to Illness Benefit. Ireland’s sick-pay is pretty minimal compared to continental systems but at least for PAYE workers there is some support. For the self-employed, nothing.
- Family Income Supplement (FIS): the self-employed can’t access FIS since it is based on hours worked. This is a valuable programme for low-income households but if that household receives income through self-employment, they are denied support. While the programme would have to be revised with dedicated monitoring and compliance measures, the self-employed should be entitled to FIS. Where is the argument in equity for discriminating against children based on their parents’ employment status?
So a progressive programme would start by ensuring that all self-employed are covered by unemployment and illness benefit while having access to income supports for low-income households with children.
But we can go further and get more creative. When a PAYE worker goes on holiday they continue drawing their wage. Not so for many self-employed. They may take a two or three week break but may have to sacrifice income. There should be a discussion around providing a state holiday pay for the self-employed. This could be set at the unemployment benefit rate (€188 per week) and would be taxable to ensure that it is progressive.
This would be of far more benefit to the self-employed than increasing tax credits (remember, 50 percent won’t benefit from a new tax credit); however, low-income self-employed households would benefit from holiday pay.
However, it is the extension of public sector supports in the market-place that can be of greatest assistance to the self-employed and, so, society and the economy. This is not about grants or tax cuts but rather cooperative activities. This could be run through greatly enhanced City and County Enterprise Boards. Such cooperative activities could involve:
- Marketing: most self-employed may not have sufficient funds to market their business to potential customers – a marketing cooperative could spread these costs and provide greater marketing presence in the local economies.
- Sourcing: again, most self-employed may not be able to take advantage of scale in purchasing materials they need to conduct their business – whether it’s a computer or a set of advanced tools. A sourcing cooperative could provide such scale and reduce costs.
Other supports could include mentoring, low-interest loans and even equity (returns on successful self-employed businesses could help limit the inevitable losses from unsuccessful businesses). This could be particularly useful for the self-employed who have employees: in exchange for increased business supports, the self-employed would give commitments for their workforce (e.g. collective bargaining, wages, training, Sunday premium and overtime pay, etc.).
A New Contract for the Self Employed
All of this will cost money. How do other countries fund their supports (in this case, social protection supports) for the self-employed? The self-employed pay higher social insurance rates.
Ireland has an anaemic social protection system; lack of pay-related benefits, coverage, support programmes. In other countries, social protection is based on sharing high levels of social insurance between employer and employee. The combined insurance is paid into enhanced social insurance funds out which higher income supports are paid and access to public services at below-market rates is granted.
However, for the self-employed there is no one to share the social insurance payments. Therefore, and inevitably, they pay a higher insurance rate than employees and in some cases nearly as high as employers. Let’s look at some selected examples.
It should be noted that these are nominal or headline rates. They do not factor in reliefs, allowances and exemptions. For instance, in Belgium the nominal employers’ social insurance rate is 35 percent. But the effective rate (after reliefs, etc.) is 23 percent. The effective rate will in all these cases be lower than the headline rate.
Nonetheless, only in Ireland (and the UK) do the self-employed and employees pay the same rate. This help explains the relative weakness of the social protection system in both these countries compared to other European countries.
Are high self-employed social insurance rates a bar to self-employment? Despite high self-employed social insurance rates in Belgium, there are as many self-employed as in Ireland (as a proportion of the workforce). In Italy, with even higher self-employed social insurance rates, there are far more self-employed than in Ireland. The reason is that there is a trade-off which works to the benefit of the self-employed – high insurance payments in exchange for high income supports and access to public services.
In this context, the argument over tax credits is beside the point. Sure, eliminate the difference in income tax treatment between the self-employed and PAYE workers. And then increase self-employed social insurance. But – and this is a big but – give equal access to social protection benefits, provide income supports that PAYE workers have, and provide business supports in terms of cooperative organisation and other programmes.
It may seem strange that the Left and trade unions should speak out on behalf of the self-employed. But why is that? The Left in Europe traditionally constructed alliances between the working class and the self-employed / small capital against large and finance capital (banks are something we can all agree on). If the Left is ever to become a force capable of leading society it will have to create alliances with constituencies and sectors outside its traditional boroughs.
That is the new contract with the self-employed. This contract can provide social security and economic supports – which will drive incomes and economic activity. This is the progressive programme for the self-employed. It is far superior to anything the Right has to offer.