However, ministers have missed opportunity to tackle challenge of tax on self-employment.

Commenting on the Government’s response to the Taylor Review, Stephen Martin, Director General of the Institute of Directors, said:

“This could be the biggest shake-up of employment law in generations. It is right, therefore, that Government proceeds cautiously by consulting widely. However, while they have accepted almost every single recommendation from the Taylor Review, and in some cases even gone further, the lack of action on tax reform is a wasted opportunity.

“The different tax treatment of the employed and self-employed has been a driving force behind the rise in self-employment in recent years, but tax treatment should not determine a person’s choice of employment status. With the Office for Budget Responsibility estimating that the growth in self-employment will cost the Exchequer £3.5bn by 2020, the Government should have shown the courage to tackle this issue head on.

“While reforms to enforcement, transparency and security will all be welcomed, clarity on employment status must be the first step. One-quarter of IoD members say they don’t fully understand the difference between employment categories because of the blurry boundaries between the separate employment types. In a system where the same person can be an employee for the purposes of employment rights and self-employed for tax purposes, it is confusing for both employers and their staff.

“The Government is right to say it will do more to root out abuses in the system and stop bad employment practices undercutting fair competition or exploiting workers, but it must do so by letting good employers know where they stand first. Not doing so would put the cart before the horse.”