The Treasury is missing out on £2.5 billion a year because builders and contractors are exploiting a loophole in the tax system, according to the construction union Ucatt.

Ucatt says that enough money to pay for the Olympics and the 2018 football World Cup could be saved if Gordon Brown cracked down on builders registering as self-employed when they work for contractors.

The union estimates that 40 per cent of Britain’s 2.2 million building workers operate falsely as self-employed. Ucatt argues that workers are not properly self-employed if they have to carry out orders; have stated hours of work; have regular work that they cannot turn down; and are provided with equipment.

Building workers who class themselves as self-employed have a CIS4 card which allows reduced contributions. The contractor using the workers makes deductions of 18 per cent of pay which goes to the Inland Revenue, although it is not classified as tax but as a deduction. This amount is below the basic rate of 22 per cent, although it rises next month to 20 per cent.

Workers using a CIS4 card are also able to make national insurance contributions of £2.10 a week, rising to £2.20 in April. This compares with normal national insurance contributions of 8 per cent of pay. Additionally, as self-employed workers, holders of CIS4 cards are able to offset costs against tax when submitting tax returns.

Alan Ritchie, general secretary of Ucatt, said: “No one in Britain should have to pay a penny towards the Olympics. Gordon Brown on Wednesday needs to close this tax loophole. Bogus self-employment is the scourge of the industry. It has led to massive skills shortages and continues to deny workers basic employment rights.”

A spokesman for the Construction Confederation, the industry trade body, said: “There is no argument that bogus self-employment is a problem and the Construction Confederation has worked with Ucatt in trying to resolve this issue over many years.

“In fairness, most good employers do not support the practice of false self-employment but clearly there are still too many bosses and workers who do allow it to happen.”

Six years ago, Mark Harvey of the Economic and Social Research Council estimated that false self-employment cost the Treasury £1.5 billion a year. Ucatt said that he ratified their latest estimate and said that it was conservative.

Ucatt is pressing the Government to insist that work on the Olympics is carried out by directly employed workers. It is arguing that the use of a cascade of contractors and self-employed workers leads to delays such as occurred with the new Wembley stadium.

Peter O’Connell, policy adviser at the Federation of Master Builders, said: “The FMB believes there is a proper place for the employed and the self-employed in the construction industry, and that it is important that the classifications are made correctly on the basis of the terms of engagement on each individual contract.”

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