New Report Reveals Extent of Secret Construction Subsidy

A new report commissioned by construction union UCATT has revealed that the construction industry enjoys a secret Government subsidy of £1.7 billion per annum through the false self-employment of workers. The publication of the report comes hot on the heels of the recent Office of Fair Trading Report into widespread price fixing by construction companies.

The report The Evasion Economy is being launched today at UCATT’s National Delegate Conference in Perth.

False self-employment occurs through the Construction industry Scheme (CIS) a stand-alone self-employment tax scheme for the construction industry. Unlike all other forms of self-employment workers are paid up front and are deducted tax at source. Although officially self-employed workers cannot refuse work, have set hours of work, have to obey orders and have their materials and large equipment provided for them.

Companies employing workers on CIS do not pay employers National Insurance Contributions (12.8 per cent of earnings), while workers pay lower NI contributions and can also make a tax return, where they can claim a rebate often amounting to several thousands pounds. A company employing a worker on CIS and paying him £20,000 would save £2,560 in national insurance contributions per annum.

The Evasion Economy written by Professor Mark Harvey of Essex University makes a conservative estimate that there are between 375,000 and 425,000 workers falsely self-employed in Britain. The figure of £1.7 billion is based on 400,000 workers being falsely self-employed. The report warns that the figures are conservative because the industry has become so casualised that official data probably does not correctly record everyone working in the industry. It is highly likely that the lose to the revenue and the number of workers falsely self-employed is far greater.

Due to being considered to be self-employed, workers on CIS do not have employment rights and can be hired or fired at a moment notice. There is also increasing evidence that CIS workers are at greater risk of death or injury due to lax health and safety regimes on the sites that they work on. Workers are denied standard benefits including holiday and sick pay.

Alan Ritchie, general secretary of UCATT, said: “This excellent report reveals that not only is the Inland Revenue losing billions in a hidden subsidy to fat cat construction bosses but that hundreds of thousands of construction workers are denied even the most basic employment rights.”

The report also details that progressive Government policies such as increasing apprenticeships and the plan for all workers to have a second earnings related pension would founder in the construction industry.

The report found that companies using false self-employment are far more likely to hire migrant workers on CIS then go to the expense and effort of training British apprenticeships. There is now an annual deficit of over 20,000 apprenticeships and trainees in the construction industry. This widening skills gap is being plugged by the short-term reliance on Eastern European workers.

While from 2012 all directly employed workers will be expected to contribute to a second pension scheme, the self-employed are not part of the scheme. As a consequence CIS construction workers will not be able to save for a secure retirement. Also it is feared that if the false self-employment regime is not tightened companies will be able to force their employees to work CIS, in order to avoid employer pension contributions.

The report recommends that CIS, where the employer pays the tax of workers up front should be abolished. It should be replaced by a simple single category of self-employment in the construction industry. These reforms would both simplify the tax system and be more consistent for the accepted legal criteria of employment status.

Mr Ritchie, added: “It is quite clear that CIS cannot be reformed, the system has failed. It is now the responsibility of the Government to act decisively and rid Britain of bogus self-employment once and for all.”

A copy of the report can be downloaded by clicking here.

For Further information contact Barckley Sumner on 0780 2329235