The clock is ticking ominously on a time bomb which could not only blow a hole in recovery of the UK’s beleaguered construction industry, but could also cause considerable collateral damage to the Treasury’s financial calculations as it attempts to restructure the nation’s finances.
This latest straw on the backs of Britain’s builders does not sound dangerous – in fact, few people will probably have even heard of it. It is called the National Insurance Disregard, and it was introduced in the early days of the Welfare State as a means of ensuring that a highly mobile workforce had some chance of getting paid holidays.
The element of workers’ holiday pay was exempted from the normal weekly National Insurance contribution and, for years, the system worked to everyone’s advantage. The money that employers saved by not paying the NI was used to introduce a whole range of benefits, such as sick pay and life cover.
It is not an exaggeration to say that the National Insurance Disregard revolutionised the approach of the construction industry to its social and welfare responsibilities and gave workers a proper stake in the industry.
But all this is about to end in October 2012, when a proposal initiated by the last government to remove the concession comes into effect – unless the industry and its trade body representatives can persuade the current government to rescind a dangerous and counter-productive decision.
The previous government decided to remove the Disregard in 2007 to close what it saw as a loophole. It had been introduced specifically for the construction industry but, around 2006, other sectors began to employ it as a simple tax avoidance measure. Construction companies were given until next year before they, too, faced its removal.
The consequences of removing this long-established concession are far-reaching, but chief among them is the effect it would have on direct employment in the construction sector. With squeezed margins and falling workloads, employers will be pushed back towards using self-employed workers in order to save on National Insurance costs.
It is reckoned that the removal of the Disregard will be the equivalent of another 1% increase in employment costs – a burden that companies faced with cuts in public spending, a Vat increase and unrelated rises in NI costs simply cannot endure.
The impact on the industry – and on the individuals who work in it – will be considerable, with an inevitable decline in good employment practices, health and safety, pensions saving, occupational health and training and apprenticeship programmes.
But the move away from direct employment that the removal of the concession would inevitably generate would also result in the loss of the employers’ NI contribution to the Treasury.
A KPMG Impact Assessment commissioned by the industry found that, in fact, the removal of the Disregard would result in a shift to self-employment of between 20% and 90%. Even at the conservative 20% estimate, the Treasury would lose £269 million – a sum which would greatly outweigh the £150 million it is estimated will be gained by scrapping it.
The Treasury questioned the findings of the KPMG survey, but at the moment it is still listening. SELECT is an active partner in a group of construction bodies which are still trying to make the argument for retaining the concession and which is actively working with the Treasury to compile information which it will find acceptable.
The fact is that the construction industry has made huge strides in transforming the sector into a responsible and conscientious employer which provides much of its own welfare benefits as well as fully-funded and fully functional training and apprenticeship schemes.
Without the concession, many of these positive, self-supporting services and initiatives would dissolve, leaving significantly increased numbers of workers in this sector falling back on to State benefits in their place.
Politicians must always guard against the Law of Unintended Consequences, but the removal of the Disregard would be such a retrograde step that not re-thinking it is really unthinkable. Nobody in the industry wants to go back to the bad old days of casual labour, so why force us to?
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