Does the Labour Campaign for the Self Employed give us a glimmer of hope?

The creation of the Labour Campaign for the Self Employed has given hope to many sole traders and micro-businesses that their concerns may at last find a champion. I am hoping that the Campaign will address the issues that face us in respect of VAT changes affecting digital cross-border sales. This is the message I have sent to the campaign today: 

The imposition of impossible EU regulations such as the VAT scheme for digital cross-border sales that came in on 1st Jan 2015 is a problem for us. It is impossible to comply with in many cases and is putting sole traders and micro-businesses at a huge disadvantage and driving trade back to the big guys like Amazon, as the smaller traders simply cannot meet the requirements of the rules at any price!

The EU has accepted that small traders being hurt was an unforseen and unintended consequence of the new rules, and that it was never the EU's plan to affect us, as according to the EU they simply did not know that we would be affected at all. The assumption appears to have been, "Don't you all sell via Amazon or eBay anyhow?" - No we do not!

For any sole trader or micro-business that sells cross-border digital products directly from its own website the initial costs of the changes required to the website are anything up to £4,000 to make the website capable of collecting the proof needed, and even then we cannot guarantee the data that we have to collect from the buyer.

The change was intended to prevent the big guys like Amazon and eBay from routing their sales via the country with the lowest VAT rate (i.e. Luxemburg mainly).  The irony is that the new rules are forcing many of us to sell via the big guys now as they can meet the new rules, whereas we cannot.

Whilst previously we would have had to charge VAT on digital cross border sales at the UK rate only if our turnover exceeded the £81,000 VAT threshold for domestic sales, now we have to charge VAT at the rate in the buyer's country and there is no threshold for digital cross-border sales, so even if we sell a music mp3 or an ebook or a knitting pattern for less than a £1 we have to register under the scheme and collect the VAT and pay it on to the buyer's tax authority.

To do so we have to *prove* where the buyer is based and calculate the VAT rate for that country and charge the buyer the relevant rate for the goods purchased (one of 70+ rates in 28 countries), and then remit the VAT to that country either directly or via one of the MOSS schemes that has been set up by different country tax authorities.

The proof we can accept includes an IP address, but this is not reliable evidence of geographical location in many cases and can be spoofed by buyers or reported incorrectly depending on how the buyer is connecting to the website to buy.

The UK government could unilaterally suspend the new rules until the EU gets the issue sorted and brings in the promised small turnover threshold but despite being asked to do so it has not. The threshold could take a couple of years to arrive as it has to be discussed and agreed by all EU member states, meanwhile we are struggling with trying to comply, or we can simply refuse to sell outside the UK (which also falls foul of another EU requirement about free trade across the EU!)

Meanwhile, you can keep up to date with progress of the threshold over on the website of the EU VAT ACTION CAMPAIGN

Why we need to rethink how income, employment and the benefits system works

As the Tory Government continues its attacks on working people, and those who cannot work due to disability, illness or other incapacity,  with its swingeing cuts to the Tax Credit system, and the constant derision and stigmatisation of those claiming benefits by both the government and the media, it has made me question the validity of the notion that everyone has to be in paid employment all their adult lives to be a useful member of society.

The Labour Party has always been the party supporting working people, and will always do so. But  we do need to rethink how employment works, as we no longer have the need for those vast employers of the past. Gone are the days of industries employing 20,000 30,000 people. Smaller businesses have become the norm, which has led to a huge pool of people with skills who are no longer able to find employment that utilises those skills.

New technology has changed the whole employment market in the same way as the Industrial Revolution changed it in the 19th century.  The mechanisation of agriculture and of industries such as cloth production caused massive changes from labour-intensive production to a few workers and a lot of machinery.  That machinery required a huge workforce to manufacture the parts and construct the whole. The mechanisation of transport meant we needed vast steelworks, loco works, vehicle construction plants and more to satisfy the ever-increasing demand for boats, trains, buses and cars.

But there is no longer a market for many of the products which were produced in massive factories in the UK. Either they are made more cheaply elsewhere or they are simply no longer required, having been superseded by new products, for example, as the humble typewriter has been replaced by computers, tablets and even smart-phones.  

Expecting every person to be in full employment or working for someone else throughout their life is now unrealistic. Many people no longer work for others but are self-employed, often providing small scale or niche market products or services. According to the government's own Business Statistics, (PDF file) as of  2014, there were 5.2 million businesses in the UK, of which more than 99% are small- or medium-sized businesses  employing  fewer than 249 people. A more surprising figure though is that 5.0 million (96%) were micro-businesses employing 9 people or less. Micro-businesses accounted for 33% of employment and 19% of gross business turnover in 2014. These figures show the huge change in the way in which people are employed in the 21st century, and there is nothing to suggest that the percentage of micro-business employment will not continue to increase. 

The service industries accounted for 73% of businesses, 79% of employment and 70% of turnover whilst the manufacturing sector accounted for only 5% of businesses, 10% of employment and 16% of turnover. 

The Report on Small Firms, 2010-2015 (PDF) , by the Prime Minister’s Advisor on Enterprise, Lord Young, published in February 2015 stated,

"In 2013 there were 2.9 million homebased businesses; an increase of nearly half a million since 2010. They contribute £300 billion to the economy."

These figures also indicate the flaws in the government's Tax Credit changes. They simply do not seem to understand that they are no longer dealing with employment within large-scale industrial employers!  It is this change that needs taking into account by government, instead of sticking to a model of employment more suited to the 1900s than the 2000's. 

Sole traders and self-employed people actually get very little in the way of support from the state benefits system despite paying Income Tax and National Insurance contributions like people in "traditional" employment. There is no provision for sickness or injury benefit or unemployment benefit for self-employed people.  The only provisions are through private insurance policies, so self-employed people pay into the state system and have to pay extra privately to have any safety net and many simply cannot afford to do this.  Tax Credits and Housing Benefits are available to self-employed people on low incomes, but the forthcoming changes to these benefits mean that many will fall outside of the support system provided by Tax Credits and Housing Benefits and will struggle to remain in business and earn enough to provide a level of income commensurate with their housing and living costs. 

It is not good enough that the Chancellor of the Exchequer says that the shortfall will be made up for by the new National Living Wage.

"From April 2016, the government will introduce a new mandatory National Living Wage (NLW) for workers aged 25 and above, initially set at £7.20 – a rise of 70p relative to the current National Minimum Wage (NMW) rate, and 50p above the increase coming into force in October. That’s a £1,200 per annum increase in earnings for a full-time worker or the current NMW.

"The adult NMW rate is currently £6.50. It will increase to £6.70 from October 2015. From April 2016 the premium will come into effect on top of the NMW, taking the National Living Wage to £7.20. The NMW will continue to apply for those aged 21+, with the premium added on top for more experienced workers taking the total hourly rate to the National Living Wage."

The National Living Wage, like the National Minimum Wage, simply does not, and cannot, apply to self-employed people!  There are also concerns that by introducing a new National Living Wage that there will be an increase in job losses and a decrease in working hours, which is counter-productive to the government's stated (but unrealistic) aim of getting everyone into work! 

"It will give a pay rise to six million workers but is expected to cost 60,000 jobs and reduce hours worked by four million a week, according to the Office for Budget Responsibility."

In practical terms, what will happen as the Tax Credits cuts slice into people's incomes, is that there will be less to spend on non-essential buying. The priority of many will have to be paying for housing and food, followed by transport and clothing. Many of those 5 million micro-businesses will be hit by the downturn in their sales which, combined with the National Living Wage, will result in many of them ceasing trading. Those people running micro-businesses and those whom they currently employ will be unemployed, which will simply reduce further their disposable income, that downward spiral leading to mass unemployment and severe hardship for many families. That's austerity in action!

What we need is a radical rethinking of the way in which living is funded, in how employment is created, in how taxes and national insurance are paid, and how the whole benefits syetm is configured.  We need to understand that an economy can only grow and that businesses can only prosper and create more employment if people have sufficient income beyond the essential level needed to cover housing, food, transport costs. We need to consider if a Citizen's Wage as proposed by The Green Party is a viable option. We also need to address the costs that we are faced with - it is no use just tackling unemployment or wage rates without addressing the cost of housing - whether for sale or rent, the cost of transport - whether by public transport or private vehicle, and the cost of energy - whether gas, electricity, or renewable sources. If all these remain high it means that no matter what the National Living Wage is set to there will always be a shortfall and less disposable income to help grow the economy through the myriad of small and micro-businesses this country currently has. 

Creating a sustainable economy capable of creating growth and maintaining incomes depends on a whole integrated package, so that the majority of people in this country benefit instead of just the few at the top of the economic system. It is not going to happen under a government that slashes welfare benefits and laughs whilst people suffer.

Are we falling through the cracks?

The Labour Party Conference Leader's Speech today makes fascinating reading or listening, depending on how you access it, but one thing jumped out at me as being a significant change from the Labour Party. Labour has long been the party of workers, of employed people, springing as it did from the loins of the early trade union movement. Keeping those roots and that connection is important, but so is moving with the times, and recognising that the era of thousands of workers in massive plants in the UK has gone, and that many people in work are now employed in the service industries or in small businesses, or are self-employed people - who now make up around 14% of all people in work!

Whilst some people are self-employed out of choice, some are so of necessity. Some, like me, live in a rural area where there is not much work and where public transport costs are exorbitant. Some can work limited hours due to childcare issues, some cannot go out to work due to being a carer, or having a disability, or other health issues. That people are self-employed and therefore earning something has many benefits, not all of which are purely financial! Feeling that you can earn your keep, or a part of it, is good for your mental health too. Being able to structure your working hours round caring for your children, your elderly relatives, a disabled partner, all help ease the pressure on families under strain.

Over the past decade or so there has been a lot of encouragement for individuals to start their own businesses. For example, we have been told that the digital economy is growing. More and more shopping is being done online. A whole raft of public services are online. We have been encouraged to get online and do all sorts of stuff, and as a country we have done just that, with 89.90% of us with internet access. Figures from the Office of National Statistics (.pdf, 482kb) state that there are 4.6 million self-employed and sole traders in the UK. That's an awful lot of people who fall outside of the scope of the current welfare state!
Jeremy Corbyn's Leader Speech had this to say about self-employed people:

In my leadership campaign I set out some ideas for how we should support small businesses and the self-employed.  

That’s because one in seven of the labour force now work for themselves.  Some of them have been driven into it as their only response to keep an income coming in, insecure though it is.  But many people like the independence and flexibility self-employment brings to their lives, the sense of being your own boss.  And that’s a good thing.

But with that independence comes insecurity and risk especially for those on the lowest and most volatile incomes.  There’s no Statutory Sick Pay if they have an accident at work.  There’s no Statutory Maternity Pay for women when they become pregnant. They have to spend time chasing bigger firms to pay their invoices on time, so they don’t slip further into debt. 

They earn less than other workers.  On average just £11,000 a year.  And their incomes have been hit hardest by five years of Tory economic failure.

So what are the Tories doing to help the self-employed, the entrepreneurs they claim to represent?  They’re clobbering them with the tax credit cuts.  And they are going to clobber them again harder as they bring in Universal Credit.  So I want our policy review to tackle this in a really serious way. And be reflective of what modern Britain is actually like.

Labour created the welfare state as an expression of a caring society – but all too often that safety net has holes in it, people fall through it, and it is not there for the self-employed.  It must be. That is the function of a universal welfare state. Consider opening up Statutory Maternity and Paternity Pay to the self-employed so all new born children can get the same level of care from their parents.

I’ve asked Angela Eagle, our Shadow Business Secretary, and Owen Smith, our Shadow Work and Pensions Secretary, to look at all the ways we can we support self-employed people and help them to grow their businesses.

This is such a significant statement for self-employed people like me. Although we pay our National Insurance contributions and our Income Tax like every other worker, we currently have no support  by way of sickness or maternity benefits. All we have is the red tape of being self-employed under a system designed for big businesses or employed people.  It's time for a change to iron out those discrepancies and to recognise, as Jeremy Corbyn clearly does, that self-employment is an important area that needs to be looked at in depth and some serious answers provided.