A lot of noise was made about the Government's U-turn on proposals to change the National Insurance Contributions (NICs) paid by the self-employed.
When you read beyond the headlines, however, the U-turn may in reality be more of a delay to proposals.
Many public sector organisations rely heavily on self-employed workers as they are able to benefit from the flexibility to hire resource as and when they are needed and the associated tax and cost savings. They therefore have an interest in what the implications would be if these reforms do go ahead in the future.
Abolish Class 2 NICs from April 2018
Class 2 NICs are a flat rate of £2.80 per week paid by self-employed workers making a profit of over £5,965 per year.
This proposal was announced in March 2016 and is still going ahead, meaning a reduction in NICs for many self-employed people.
Increase the rate of Class 4 NICs in April 2018 and again in April 2019
Class 4 NICs are a proportion of profits paid by self-employed workers making a profit of over £8,060 a year. The current rate is 9% and the proposal was to increase this to 10% in April 2018 and 11% in April 2019.
This proposal has been put on hold.
Historically, self-employed people have paid a lower rate of National Insurance because they do not have access to all the benefits that are funded by NICs (e.g. statutory sick pay).
Recent changes to the pension system mean that the difference in benefits received by the employed and the self-employed are more similar, and the rational for having different rates is disappearing.
The abolition of Class 2 NICs will increase the difference in the rate paid by the employed as against the self-employed. The increase of the rate of Class 4 NICs would therefore balance this out, reducing the differential rate between the employed and the self-employed.
The Chancellor also indicated that the Government would be looking at access to paid-parental leave for self-employed workers, another step towards equalising the benefits received by employed and the self-employed workers.
The Government was criticised for breaking a manifesto promise not to increase taxes for 5 years and back-tracked on its proposals a week later, saying there will not be any increases in National Insurance rates "in this Parliament".
Another criticism of the proposals was that they place an additional financial burden on the self-employed but do nothing to increase the burden on the companies who benefit from self-employed workers, such as Uber and Deliveroo.
Ultimately the U-turn came down to political considerations rather than policy reasons. The justifications for reforming NICs for self-employed workers have not gone away so we are likely to hear more on this in the future.
If the reforms do go ahead, what impact could they have on the public sector?
Organisations relying on self-employed workers may find that these resources are in short supply. The proposals have been perceived by many workers to make being self-employed a less attractive prospect. The public sector could therefore be faced with the challenge of finding and retaining enough workers.
Furthermore, if the Government addresses the argument that those organisations benefitting from using self-employed workers should share the tax burden, public sector organisations could also face an increased tax liability.