By the Government’s own figures 800,000 workers and over 100,000 building firms will be affected by these proposals.

Months of uncertainty will be followed by months or years of expense and confusion as the industry seeks to get ready for what would be a major change to long-established working practices.

The Government admit that the industry is not strong enough to bear this today, but why even introduce an obstacle to getting industry moving again?

The three criteria are simply unworkable.

MATERIALS

No trade-operative can supply all the materials required for his job at a cost effective price. From the smallest one-man contractor to the largest construction company, procurement is in the control of the client, the architect and the contractor. Sophisticated clients and specifiers do not want piecemeal acquisition of materials.

Credit facilities, purchasing discounts and delivery and storage logistics present completely impractical criteria which will prevent 90% of trade groups from providing materials.

PLANT & EQUIPMENT

The plant and equipment criteria are similarly unworkable. Take the provision of a scaffold as an example. This would be used by perhaps 10 or 12 different trade groups. If the supply, erection and dismantling of scaffolding is to be a necessary criteria of self-employment, how many individual tradesmen can afford, order and pay for a scaffold? How many transfers of ownership could be needed? And most importantly, who would take responsibility for statutory Health & Safety requirements?

EMPLOYMENT OF OTHER WORKERS

The provision of labour is both un-necessary and impractical too. Almost every activity on a building site is undertaken by operatives working in pairs or gangs of 3-6 people. If they take a shared or collective responsibility to produce a finished item or section of work, meeting quality standards and being paid only for what they produce, then why do some or half of them have to be employees? And who will decide which one of them is to be taxed under CIS and who as an employee?

Self employed workers provide a strong pool of skilled and flexible labour which is absolutely essential for the recovery and future growth of the UK construction sector.

Compared to hiring employees, engaging self-employed operatives allows firms to: pass off some of the business risk; avoid carrying spare capacity; be more agile and flexible when responding to market opportunities; break big projects into small units and ring fence their risk; and remunerate workers on performance rather than inputs (again passing off risk as well as motivating productivity).

These proposals will hit hardest precisely those small entrepreneurial firms that will drive growth back into the construction sector. These are the new ventures who face more uncertainty and who with limited finance undertake smaller scale activity where it is not feasible to give permanent employment to workers.

This is particularly relevant in the construction industry where the need for specialist trade skills means many types of workers are only needed for a small subset of the total labour input on any given construction project.

These proposals will mean greater costs, higher barriers to entry for new ventures , and ultimately less economic growth.

The Government has set out a proposal where if workers can prove any one of three sufficient conditions they will be classified as being legitimately self-employed.

New intermediaries

It is likely that business practice will respond with the creation of intermediaries or mechanisms to enable workers to qualify for at least one of these sufficient conditions.

Such mechanisms will serve no productive effect and will operate as a productivity dead-weight on the construction sector, pushing up costs and reducing efficiency.

More blackmarket activity

The consultation document has not even considered the potential for workers to leave the industry or to join the black market, operating outside the tax system and often beyond health and safety laws too.

For example, if only 20% of the 300,000 workers identified by the Government as “falsely self-employed” went underground, the Exchequer would actually be worse off under the new proposals.

Extra costs for HMRC

There is also no appreciation in the Government’s proposals of the impact of the costs of processing complex PAYE assessments from workers who will have multiple different employers in any given year.

A system that saw workers moving between PAYE and CIS from job to job – entirely possible under HMRC’s proposals – would be even more complicated and costly to administer.

The Government has estimated that £350m is lost to the Exchequer every year because of false self-employment. Indeed, the credibility of its new proposals is built on these figures.

Yet there is no hard evidence for any of these numbers.

• The Government estimates that some 300,000 workers are likely to be “falsely self-employed”. The only basis for this figure is that it is a mid-point of the Government’s previous estimate of 100-200,000 and a claim of 375-433,000 made by Professor Mark Harvey of Essex University in a study funded by UCATT.
• To reach £350m in lost tax the Government have then assumed that every one of these 300,000 workers will move to full PAYE and NICs.

No account is taken of significantly increased administrative costs (for Government as well as industry), and no account is taken for workers who choose to leave the industry and for those who choose to work on the black-market.

UCATT, the construction workers’ union, argues that reform is needed because self-employed workers do not have the same employment rights as PAYE employees. But the Treasury admits that employment rights are not covered by the proposed legislation.

For example, although many operatives will now be “deemed” to be employees, and paying tax and national insurance as if they were, they will not gain additional employment protections such as unfair dismissal rights or Job Seekers Allowance.

Surely if self-employment is truly “false”, individuals should be treated for all purposes as employees.

HMRC want workers to be treated as employees for the purposes of paying tax, but accepts that the unique commercial circumstances of the construction industry requires that a sufficiently large group of workers remain self-employed under employment law.

The net result of these proposals will be a significant decrease in living standards for hundreds of thousands of families, with long term consequences for attracting new workers into the industry.

The Government’s consultation paper recognises that much of the burden will fall upon the builders themselves.

The proposals will effectively introduce a tax increase that will reduce the standard of living for hundreds of thousands of households.

Longer term this may well affect the attractiveness of the industry and the sector’s ability to maintain a skilled workforce.

The Government acknowledges that the proposal will lead to an increase of over 13% in the cost of much labour for construction firms.

The Government also acknowledge that these proposals will mean more red‐tape and an additional £25m in administrative costs for engagers. We believe that even this figure is a gross underestimation of the probable compliance costs for building firms.

Under the new proposals building firms will have to manage the administration of three classes of employment: employees, self-employed and “as-though employed”. The administrative burden of keeping sufficient documentation to provide an audit trail to meet and pass an HMRC status inspection is already an onerous task.

If operatives are to provide materials or plant hire, then presumably purchase invoices will need to be provided and kept. These are often issued by suppliers days or weeks after supply and without them, the subbie won’t be able to be paid. This will mean an additional burden on the payroll department, or in the case of small businesses, the owner / manager.

If operatives are to provide an employee, will proof of payment under PAYE need to be presented each week? Who’s to say a deductions card can’t be falsified? What process is going to be required to check the validity, another phone-in to HMRC? This will mean a further burden on the payroll department, or in the case of small businesses again, the owner / manager.

We believe that the ability of an individual to profit directly from his own actions (or indeed suffer loss) is a cornerstone of self-employment.

In the construction industry the subcontractor will either quote for specific work on offer or there will be an agreed rate that the contractor is prepared to pay for specified work. That means the subcontractor can make more money by working more quickly and more efficiently or lose money by not doing so.

Payment for the work that is done, together with the obligation for the subcontractor to remedy any defective work at his own cost are fundamental indicators of self employment.

An hourly rate of pay, on the other hand, with work being remedied at the contractors cost would be more indicative of employment.

However, the deeming provisions totally ignore this difference.