Tax and the self-employed

For all the sound and fury over national insurance and the self-employed, it is still a sideshow in wider debates about tax, employment status and rights at work.

Philip Hammond’s unraveling Budget matters politically and it signals both the strength and the weakness of the government. Only a chancellor facing the worst opposition in decades could even consider a measure that breaks four separate commitments in the 2015 Conservative manifesto. Only a prime minister with a small majority could be forced to retreat at the first sign of Tory dissent and newspaper headlines about white vans.

hammond

Much of the blame lies with the ex-chancellor now trousering £1m a year on top of his MP’s salary for his advice and speeches. It makes you wonder how George Osborne is being paid for all that hard work and hope that he’s about to get clobbered for tax because it’s through a personal service company.

It was Osborne who in 2015 abolished Class 2 national insurance contributions (NICs) for the self-employed (from 2018) and gave them access to the higher state pension via Class 4. If he had introduced an increase in Class 4 contributions at the same time, few people would have complained. Instead he posed as the great reforming chancellor, agreed the manifesto pledge and left Hammond to fill the holes in his spreadsheet.

Combine these different measures and the treatment of the self-employed looks (reasonably) fair: most of the lowest paid will pay less, there’s a better state pension than before, and the burden falls heaviest on people earning more. But try and defend this week’s Budget announcement using that argument and you look like a shifty betrayer of ‘ordinary working families’ and ‘entrepreneurs’.

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JAMs and NOMADs

Originally published on November 23 on my blog for Inside Housing

Wednesday’s Autumn Statement by Philip Hammond is good news for housing on several different fronts.

First, at long last housing is being recognised as infrastructure. That’s important enough in itself but Mr Hammond went even further by pitching housing as part of the solution to the key economic problem of productivity.

Along with transport, digital communications and research and development, housing will be part of the chancellor’s £23bn National Productivity Investment Fund. In financial terms, accelerated construction, affordable housing and the new Housing Infrastructure Fund represent a third of the total cost.

Mr Hammond also named “the housing challenge” alongside the productivity gap and the imbalance in prosperity across the country as one of the economy’s long-term weaknesses.

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The turn of the screw

Originally posted on April 4 on Inside Edge 2, my blog for Inside Housing

You’d never guess it from the sound of the violins playing for Buy to Let but there were other significant changes to benefits and tax on housing this month.

As ‘investors’ rushed to beat the April 1 deadline for higher rates of stamp duty on second homes, the orchestra reached a crescendo after new affordability tests were proposed by the Bank of England.

All that noise meant much less was heard about their tenants facing up to the first year of an unprecedented four-year freeze in their local housing allowance and other benefits and tax credits.

After three years in which LHA increases were restricted to 1 per cent, housing benefit rates for private tenants will now stay the same until 2020. Whatever the problems faced by their landlords, that means tenants will inevitably see rising shortfalls between their benefit and their rent. Equally inevitably, you would think, evictions will rise.

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Farewell to the Great Social Reformer

You go away for the weekend and suddenly everything goes mad: it turns out that Iain Duncan Smith was really a Socialist or a Liberal Democrat all along.

The Great Social Reformer (this is what the many ‘friends of’ IDS speaking to journalists call him) has not just resigned, not just skewered George Osborne, he’s also questioned the fundamentals of the post-2010 Conservatives narrative. We are not ‘all in this together’, the most vulnerable will not be ‘protected’ and the deficit reduction target is ‘more and more perceived as distinctly political rather than in the national economic interest’.

Yet this (apparent) modern day heir to Tory Great Social Reformers like Shaftesbury and Wilberforce is also the same Iain Duncan Smith responsible for punitive benefit sanctions, the bedroom tax, the £30 a week ESA cut and all the other salami slices taken out of the social security system in the last six years that were not ‘compromises too far’. The man who took the moral high ground about cuts that benefit the better-off is the same one who stood on a manifesto of cutting inheritance tax and £12 billion from benefits.

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Work hard, do the right thing – and get screwed

How has George Osborne got away with a Budget that will hurt the very people he claims it will help most: hardworking families?

The headlines are all about One Nation, National Living Wage and tax cuts but, as the dust settles, the calculations that have emerged so far make clear that the poorest households are going to suffer significant cuts in income. While a series of cuts such as the lower benefit cap will hit out-of-work households hard, people in work face a series of technical changes to tax credits and benefits that will make many of them substantially worse off.

To give some idea, here are the three main cuts:

  • A four-year freeze in working age benefits saving £4 billion by 2020/21. The Institute for Fiscal Studies estimates that this alone means that 13 million families will lose an average of £260 a year. Of those, 7.4 million are in work and will lose £280 a year. The freeze will also hit child benefit, which David Cameron promised to protect.
  • £6 billion worth of cuts to tax credits (and subsequently universal credit) and associated housing allowances from April 2017. The IFS says new claimants will lose credit entitlement for more than two children, losing the average of £3,670 a year that currently goes to 872,000 families (548,000 in work). On top of that, the family element in credits for the first child will be cut for new claimants and housing allowances associated with both will be cut too. Kate Webb of Shelter calculates that just one change – the removal of the family premium, an allowance of earned income before housing benefit starts to be withdrawn for working families with children – could cost a single mother working 20 hours a week at the new national living wage £11 a week. That’s not much less than the bedroom tax.
  • Cuts to work allowances that mean working households will lose tax credits/universal credit much more quickly than now. At the moment, credits start to be withdrawn once family earnings rise above £6,420. That will fall to just £3,850. This will cost 3 million working families just over £1,000 a year each. Credits will also be withdrawn at a faster rate once they hit that threshold.

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If the cap fits

Worried about the impact of the benefit cap, social landlords? You should be because what happens next seems to be your responsibility.

As housing organisations slowly wake up to the dire implications of reducing the cap to £23,000, Iain Duncan Smith was asked about it at work and pensions questions on Monday. Labour’s Clive Betts asked what consultations the DWP had done with social landlords on the effects of the introduction of universal credit and the benefit cap on direct rent payments to landlords. After the usual guff about roll-outs from IDS, Betts pressed him with a points raised by Tony Stacey of South Yorkshire Housing Association (and Placeshapers):

‘Currently, if a household is in rent arrears and gets housing benefit, the benefit can be paid directly to the social landlord. When universal credit is introduced, if the family also gets a welfare cap, it is the housing cost element that is squeezed by the cap. No longer will the amount of universal credit be paid directly to the social landlord to cover the rent. Can the Secretary of State not see that that could lead to a rise in evictions? Is he aware of the problem, and what will he do about it?’

The context for this was highlighted ahead of this week’s CIH conference in Manchester in a UK Housing Review briefing on Monday. After allowing for other benefits and tax credits, the £23,000 cap will leave a couple with four children just £33 a week to spend on their rent and a couple with three children just £110 a week. Here are the impacts by family size:

impact of 23k cap

Effectively that means larger families will be priced out of even social housing throughout the UK and a couple with three children will not be able to afford the average housing association rent anywhere in the Midlands or South of England. The impact will be felt far beyond inner London and the CIH estimates that four times more households could be affected than under the current £26,000 cap.

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Sign of four

It’s time once again for a comprehensive overview of the state of the housing nation. Here are four key points I drew from this year’s UK Housing Review.

The headlines so far have been made by falls in home ownership for young people, but the 2015 Review also highlights these other key points for housing across all tenures:

1) Universal dependency

This isn’t the first time the Review has made this point but it is the first time I’ve seen it summed up so clearly in one graph.

All the rhetoric about universal credit says that it will reward those ‘hardworking families’ and help to end the ‘dependency culture’ of the benefits system. The new scheme does improve the poverty trap caused by the rate at which housing benefit is withdrawn as your earnings rise. A failure to include council tax benefit plus cuts in recent Budgets and Autumn Statement detract from this objective but it does still seem better designed to ‘make work pay’.

However, there is a price to be paid for this improvement.

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