The impact of the tax system on self-employment in the British construction industry

This paper examines the impact of government taxation policy on self-employment as the preferred form of job tenure in the British construction industry. It analyses the rapid growth in self-employment over the period 1970-1996 in the context of a very benign tax regime. It shows how self-employment has grown far more rapidly in construction than in other economic sectors and also how British construction has more self-employment than its European counterparts. The role of financial factors, especially taxation in the decisions of companies to use self-employed workers and in workers themselves opting for self-employed status, is identified. Recent changes in the approach of taxation authorities towards construction workers are described and the broad impact of such measures on the propensity to self-employment is outlined. An economic model is specified for explaining construction self-employment in terms of taxation and other economic determinants and the empirical results of applying the model to annual data for the period 1970 to 1999 are reported.