The detail of the change is fiendishly complicated. But, in essence, most self-employed people will, in future, pay tax on a higher assessment of income than under the old system. Instead of being taxed, as now, on income earned a few years ago, they will be assessed on current earnings, which will usually be higher.
Adding insult to injury, the self-employed are also being asked to do the Inland Revenue's job. In future, they will fill in tax forms and work out their tax liabilities themselves. Known as "self-assessment", it will quickly be seen as yet another job creation scheme for accountants.
Arguably, all this makes for a fairer, simpler tax system. It does seem odd that the self-employed get to delay their tax payments with all the advantages that entails, while most employees have to pay month by month, or week by week, as they earn. But if the Government really felt that the self-employed were not paying their fair share in tax, ministers should have made their views public. Instead, they have secreted away a tax increase - amounting on average to more than pounds 200 for a self-employed person - behind an apparently innocuous bureaucratic reform.
Indeed, in recent months the Chancellor, Kenneth Clarke, and colleagues have led us to believe that they are on the side of hard-pressed small businesses. Speech after speech heralds the self-employed as the engine of the economy, who need encouragement, not punishment, from the tax system. In November's Budget, for example, small businesses were given special treatment on their business rates.
The self-employed generally face greater risks than the rest of the working population. They have to worry about managing their own business as well as working for it. An economy that relies on their enterprise needs a tax regime that recognises these risks. And a government that seeks to promote that enterprise should not surreptitiously change the rules.
Once the true nature of these measures is discovered, the Government can expect a hostile reaction. The self-employed were a bedrock of support for the Conservatives during the Eighties. They will feel badly let down. In a Budget characterised by small tax cuts for most people, the Government, in a backhanded manner, has introduced a thumping great bill for its erstwhile supporters. Perhaps Mr Clarke hoped that no one would notice until after the election, given that the tax increases won't bite until 1998/99. If so, he was mistaken. This is an unexplained tax increase, which should not remain hidden by its complicated nature.
The measure is not indefensible: it seeks to tidy up an anomaly. The consequence, though, is a significant tax increase. That being the case, the change should be argued for openly and not introduced by subterfuge.Reuse content