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.