ir35.jpg (1742 bytes) 3 sixty group were supplied today (Friday 14/05/99) with a copy of amendments to the Welfare Reform and Pensions Bill which indicate the Inland Revenues thinking towards IR35 and the Finance Act 2000.   The final approval of that Bill is due on Monday 17/05/99.

Please read the 3 sixty group Positioning Statement which has been distributed to brief MPs before they make their final decisions on adoption of the Bill and the effect of acceptance of detailed amendments.

 

This statement was issued on behalf of the IR35 Consultation Group by 3 sixty group

 

POSITIONING STATEMENT – URGENT

TODAY WE HAVE RECEIVED A COPY OF LAST MINUTE AMMENDMENTS TO THE WELFARE REFORM AND PENSIONS BILL, FROM WESTMINSTER, WHICH HAVE NOT BEEN FULLY CONSIDERED AND CONTRADICT GOVERNMENT COMMITMENTS.

Background

The Inland Revenue has been looking at ways to reduce the "fiscal advantage" gained by those Contractors running small Limited Companies.

This currently occurs through the tax and National Insurance savings achieved by the use of dividend payments to Company Directors.

Most people in those industries affected agree that a reasonable social contribution should be paid and are currently seeking to achieve this through representations to the Inland Revenue and seek a compromise

Proposals issued by the Inland Revenue following their press release IR35 would result in widespread change to industry, including the UK’s flagship IT sector.

The changes proposed do not appear to have been fully considered and some of the identified effects will be:

  1. Drive up the cost of services to all UK companies through increased National Insurance and regulatory burdens,
  2. Reduce the competitiveness of UK companies through additional labour costs,
  3. Reduce the competitiveness of "UK plc" through a negative impact on the flexibility and response speed of UK businesses by use of specialist workers for specific projects,
  4. Result in an exodus of highly skilled UK contractor specialists to Europe/USA (where they are in equal demand and receive up to 35% of income tax free). Further magnifying the current skill shortage crisis,
  5. Increased cost to government through policing of the new structure. (The current cost of policing UK Payroll is estimated at £1.3bn
  6. (i)   Hamper achievement of commitments to modernise UK Government – made by Tony Blair,

      6.  (ii) Hamper advancement of commitments to modernise and streamline NHS systems made by Tony Blair Including on-line Patient Booking systems,

      6.  (iii) Hamper commitment to achieve improvement in Education Systems – by Tony Blair, and

      7.  Disadvantage workers through the nature of the inflexibility of current pension transfer provisions. Existing Executive Company Pension Schemes will be forced to              cease.

 

Urgent Action Required

The government have tabled amendments today (14/05/99) to the Welfare and Reform Pension Bill which is before the Commons on Monday 17 May 1999. As mirroring legislation this bill in effect indicates the intention of the government with regard to the Finance Act 2000. (IR35)

Whilst these amendments propose Regulation which will not come into effect until adoption of the Finance Act 2000, introduction of detailed measures, at this stage, which would cause far reaching change and may require future amendment, is not productive.

The Inland Revenue has called for comment on the IR35 proposals, yet has chosen to proceed before all relevant comments have been received. The Regulatory Impact Assessment has not been carried out. Because of the far-reaching consequences it would appear premature to table such amendments.

This in direct contradiction to the government’s own guidelines for better regulation, which state:

 
Must have broad public support - Not demonstrated
Must be enforceable – At what cost?
Must be easy to understand – Many unclear areas
Must be balanced and avoid impetuous knee-jerk reaction – No analysis
Must avoid unintended consequences – Not demonstrated as highly likely in this case
Excessive red tape can unnecessarily reduce the effectiveness of small businesses
– Major impact on small business
Regulations which restrict international competitiveness for example, higher product testing requirements in the UK than elsewhere in Europe
– Reduced flexibility / increased cost for UK plc
Must balance risk, cost and practical benefit – No cost benefit analysis
Must reconcile contradictory policy objectives – Not demonstrated
Must have accountability – Not demonstrated
Must be relevant – There are better and more cost effective alternatives

 

Conclusion

This legislation is not in the interest of UK plc and will reduce the opportunity for entrepreneurial activity through the use of the UK IT Sector.

The late introduction of these amendments to Regulation which have a major affect of the Primary Legislation, IR35, leaves no time to effectively present realistic and fully analysed alternatives.

The proposal goes against the Prime Ministers’ intention to make the UK the premier Country for IT by 2002 - In the White Paper "Our Competitive Future: Building the Knowledge-Driven Economy", published in December 1998, the Government set out the ambitious goal of "developing the UK as the world’s best environment for electronic trading by 2002".

The majority of central government contracts are outsourced, relying heavily on contract IT staff. What will be the effect to the public purse if costs increase?

Tony Blair PM himself quoted in his Foreword to Our information age: The Government’s Vision:

"In this policy statement, we set out our ideas on how the Government will act to enable people to take advantage of the new information age – a co-ordinated strategy which will focus on transforming education, widening access, promoting competition and competitiveness, fostering quality and modernising government."

 

Action Requested

We ask that these amendments are excluded from this Bill and all of the impacts and alternatives are identified, costed and released for discussion - prior to any change. We support measures that result in fairer social contributions, however, the best option for UK plc has not yet been identified.

 

 

For further information and in depth analysis on points raised in this Positioning Statement please contact:

Iain Sutherland, Brian Keegan or Sebastian Moore at 3 sixty group on 0845 20 20 360

This document is copyright to 3 sixty group – it may be reproduced freely if complete and referenced to 3 sixty group