Conservative MPs are promoting an idea based on a German model that critics say ties workers to low-wage work
The creation of “mini-jobs”, which allow people to take on work without paying tax or national insurance, is being considered by the Treasury as one of a package of measures to make it easier to create employment.
The idea – being promoted by some influential Conservative MPs – is modelled on a scheme in Germany, in which employees can earn up to €400 a month (about £314) without giving up any of their salary, and employers pay only a flat rate to cover pensions, social insurance and wage taxes, making administration simpler.
People can hold several mini-jobs up to the €400 a month tax-free limit, with the only impact on their income being the reduction of unemployment benefit over a certain threshold. Between €400 and €800, workers pay tax on a sliding scale.
The initiative, introduced nearly a decade ago, is hailed by some as the key to Germany’s “jobs miracle”, which has seen the country register one of the lowest unemployment rates in Europe at a time when most of the continent is struggling to cope with recession.
However, critics say mini-jobs have locked part of the workforce into low-wage employment (Germany has no minimum wage), with little prospect of advancement, often in sectors such as catering and hospitality. There are also suggestions that full-time jobs are being split into several mini-jobs, reducing tax income.
Despite the potential for controversy, an ally of George Osborne, said: “What I can tell you is that this is being looked at in government. There are lots of ideas that are being looked at as part of the deregulation drive, and this is one of them.”
Another Treasury source said it was too soon to say whether Osborne would adopt the scheme, but did not rule it out: “As the chancellor and Danny Alexander have said, it’s a relentless focus on the economy, and the consequence of that is we’re looking at lots of things.”
Although Liberal Democrats in the coalition were seen as key in blocking ideas for deregulating the labour market put forward in a report by Sir Adrian Beecroft, a party source said it was not true that there was a dispute with Conservatives over the idea of mini-jobs. “It’s definitely something the chancellor is keen on,” said the source. “It is not true we are opposing it – we will look at the options.”
However, those close to the Lib Dem business secretary Vince Cable appeared dismissive. In a statement, the Department for Business, Innovation and Skills said: “This proposal is a German solution designed to deal with particular issues in the German labour market, driven by their relatively high taxes on labour. This is quite different to the situation in the UK.
“The government is already taking action to take more people out of income tax and we are carrying out a root-and-branch reform of labour laws to make business more effective while maintaining protections for employees.”
At present, workers in the UK can earn £8,105 a year before they start paying tax – equivalent to £675 a month. Any new cap in the UK would need to be higher than that currently in place in Germany.
Tory MPs who have advocated a scheme styled on mini-jobs include Elizabeth Truss, convenor of the Free Enterprise Group, which promotes policy ideas from the right of the party; and one of the 2010 intake of rising stars, Kwasi Kwarteng.
The government is also under pressure to make other moves to help the ailing economy, including from Tory MPs calling for more deregulation, housebuilding and a renewed commitment to expanding Heathrow airport. A few Lib Dems have broken ranks with the coalition to appeal for the chancellor to relax the debt reduction targets to spend more on infrastructure building and other short-term assistance for jobs and growth.