A report published this week has revealed that tax evasion through false self-employment in the construction industry is costing the UK £1.7 billion a year, enough to build, maintain and run many new hospitals.

The study by Professor Mark Harvey of the University of Essex calculates that there are between 375,000 and 425,000 workers falsely self-employed in the UK construction industry. Their employers pay no National Insurance (NI) contributions, while the workers themselves pay lower NI contributions and can claim special tax rebates.

Professor Harvey, of the Department of Sociology, explained: ‘False self-employment is adopted as a device to reduce tax liabilities and employer responsibilities. It occurs through the Construction Industry Scheme (CIS), a self-employment tax scheme peculiar to the construction industry. Unlike genuine self-employment workers they are paid wages rather than work for a client under contract, have set hours of work and have tax deducted at source.

‘The UK construction industry has been characterised by high levels of false self-employment for several decades but recently this level has risen significantly.’

Much of the recent rise in false self-employment can be attributed to the influx of migrant labour from the new member and accession states in Europe. Professor Harvey explained: ‘Employers have taken advantage of the vulnerability of migrant workers, and exacerbated their insecurity by engaging them as false self-employed. Government regulations for migration make it easier to migrate as self-employed, and this has played into the evasion economy characteristic of much of the industry.’

Professor Harvey added: ‘Government figures of between 100,000 and 200,000 falsely self-employed and a fiscal loss of £340,000 are gross underestimates. Treasury ministers, however have effectively acknowledged that self-employment is out of control.’

The growth of false self-employment is one of the major causes of the skills gap, with an annual deficit of 20,000 apprentices and trainees. Three quarters of construction companies have no apprentices or trainees in their workforce.

The report, entitled The Evasion Economy was commissioned by UCATT (the Union of Construction, Allied Trades and Technicians) and has been launched this week at the Union’s National Delegate Conference.