A new report commissioned by construction union UCATT has revealed that the construction industry enjoys a secret Government subsidy of £1.7bn per annum through the false self-employment of workers.

The publication of the report comes hot on the heels of the recent Office of Fair Trading Report into widespread price fixing by construction companies.

False self-employment occurs through the Construction industry Scheme (CIS) a stand-alone self-employment tax scheme for the construction industry. Unlike all other forms of self-employment workers are paid up front and are deducted tax at source. Although officially self-employed workers cannot refuse work, have set hours of work, have to obey orders and have their materials and large equipment provided for them.

Companies employing workers on CIS do not pay employers National Insurance Contributions (12.8 per cent of earnings), while workers pay lower NI contributions and can also make a tax return, where they can claim a rebate often amounting to several thousands pounds. A company employing a worker on CIS and paying him £20,000 would save £2,560 in national insurance contributions per annum.

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The Evasion Economy written by Professor Mark Harvey of Essex University makes a conservative estimate that there are between 375,000 and 425,000 workers falsely self-employed in Britain. The figure of £1.7 billion is based on 400,000 workers being falsely self-employed.

The report warns that the figures are conservative because the industry has become so casualised that official data probably does not correctly record everyone working in the industry. It is highly likely that the lose to the revenue and the number of workers falsely self-employed is far greater.

Due to being considered to be self-employed, workers on CIS do not have employment rights and can be hired or fired at a moment notice. There is also increasing evidence that CIS workers are at greater risk of death or injury due to lax health and safety regimes on the sites that they work on. Workers are denied standard benefits including holiday and sick pay.

Alan Ritchie, general secretary of UCATT, said: "This excellent report reveals that not only is the Inland Revenue losing billions in a hidden subsidy to fat cat construction bosses but that hundreds of thousands of construction workers are denied even the most basic employment rights."

(GK/JM)