How the Resolution Foundation Misunderstands the Self-Employed
The Resolution Foundation’s recent analysis of the self-employed once again frames independence as a fiscal problem rather than a structural strength. By focusing on alleged “tax advantages” and perceived insecurity, the Foundation overlooks the reality that self-employment is not a loophole — it is a vital, long-standing component of Britain’s economic resilience.
A Narrow View of Fairness
The Foundation’s report, It’s Personal (Taxation), argues that self-employed workers pay around 55% less in total labour taxes than employees on equivalent earnings — an apparent 11 percentage point gap. Yet this calculation ignores what those taxes fund.
Employees benefit from paid holidays, employer pensions, sick pay, and other protections that together represent 16–25% of salary, or roughly £8,000 on a £40,000 income. The self-employed must either fund these themselves or go without. When the full picture is considered, the so-called “tax gap” turns into a benefits gap — one that would cost the Treasury far more to close than it could ever recoup through higher self-employed taxation.
The Reality of Risk and Reward
According to the Institute for Fiscal Studies, self-employed workers earn about 30% less than comparable employees. That shortfall reflects the cost of volatility, unpaid downtime, and business risk — not a fiscal advantage.
Equally, portraying self-employment as inherently precarious misses the point. Many contractors report higher autonomy, satisfaction, and adaptability. Data from the ONS shows job satisfaction among the self-employed at 74%, compared with 59% for employees, alongside higher rates of tax compliance and sectoral growth. This is not evidence of fragility but of commitment and resilience.
Beyond Simplistic Comparisons
Policy discussions often treat all self-employed individuals as one group, ignoring the diversity of industries, skills, and motivations they represent. A sole trader in construction faces a different landscape from a digital consultant, yet both are routinely caught in one-size-fits-all debates about “fairness.”
This lack of nuance risks damaging a sector that acts as the shock absorber of the UK economy, offering flexibility that businesses and public services depend upon.
The Cost of False Parity
If government were to equalise self-employed taxes with employment, the Resolution Foundation estimates an additional £9–10 billion in annual revenue. However, providing comparable benefits would cost at least £20–24 billion, leaving a deficit of roughly £11 billion — before considering the administrative burden and behavioural shifts such a policy would trigger.
In other words, “tax parity” would be fiscally counterproductive and economically destabilising.
Toward Intelligent Policy
Constructive reform should rest on three principles:
Fairness through context, not comparison — recognise that self-employed workers already absorb costs and risks employees never face.
Support, don’t penalise — build portable, contributory benefits rather than eroding flexibility through higher taxes.
Target avoidance, not independence — ensure genuine employment is taxed as such, but protect legitimate contractors from policy overreach such as IR35-style measures.
Protecting a Core Economic Tradition
Self-employment is not a relic or a tax dodge; it is a defining feature of Britain’s economic DNA. From local trades to high-end consultancy, independent professionals sustain innovation, stability, and growth.
If policymakers seek fairness, they must measure it by both taxes and benefits — not one without the other. The self-employed already pay their way; what they lack is recognition, not contribution.
Sources
1.Resolution Foundation – It’s Personal (Taxation): The Case for a Fairer Tax System. https://www.resolutionfoundation.org/publications/its-personal-taxation/ ([Resolution Foundation][1])
2.Institute for Fiscal Studies (IFS) – What Does the Rise of Self-Employment Tell Us About the UK Labour Market? (2024) https://ifs.org.uk/publications/what-does-rise-self-employment-tell-us-about-uk-labour-market ([Institute for Fiscal Studies][2])
3.Social Market Foundation (SMF) – Saving for the Future: The Self-Employed Pension Gap. https://www.smf.co.uk/government-must-stop-ignoring-self-employed-pension-crisis-think-tank-urges/ ([smf.co.uk][3])
Office for National Statistics (ONS) – Labour Force Survey: Job Satisfaction and Labour Market Statistics, 2023. HM Treasury – Costing of Employer-Provided Benefits and Labour Market Report (2024).
4.ContractorUK – Analysis: The True Cost of Self-Employment vs Employment. https://contractoruk.com/news/00289001why_resolution_foundation_has_got_self_employed_wrong.html ([ContractorUK][4])
