Blair rejects PCG appeal to step in over IR35

Tony Blair has responded to the PCG's letter of February 2nd 2001 in which he was urged to personally step in and end the uncertainty that IR35 is causing small knowledge-based consultancies.

The letter received by the PCG is reproduced in full...

13 March 2001

The Prime Minister has asked me to thank you for your letter of 5 February.

Dawn Primarolo has explained to you the reasons why the IR35 legislation was introduced. It is not targeted on the IT industry, but on workers in all industries who have used services companies to avoid tax and National Insurance liabilities which they would otherwise face. The Government believe that people doing similar jobs should pay tax on their earnings on a similar basis, and the legislation is designed to produce those results. Not only does this ensure a fair tax system, it also means that measures which are intended to support small businesses can be targeted on genuine entrepreneurs, and are not available to people who are no different to employees.

The Prime Minister strongly supports the development of a successful knowledge economy in the UK, and is seeking to make Britain the most competitive environment for business in the world. Since 1997, the government has cut tax for small companies by nearly 25% and, from April 2000, introduced a 10p starting rate of Corporation Tax, to support genuine small businesses. According to an independent report by Arthur Anderson/Growth Plus in January 2001, which benchmarks the UK against the US and major European countries, the UK now provides the most entrepreneur-friendly environment of any major country, fostering growth companies effectively. And in spite of claims such as those in your letter, there is no concrete evidence of damage to the IT industry as a result of IR35, or of any exodus of skilled workers.

Against this background, the Prime Minister shares your concern that any uncertainty surrounding the future of the legislation should be removed as quickly as possible, and hopes that this will be possible following the hearing of your application for Judicial Review.

Yours sincerely

Jeremy Heywood

Principal Private Secretary

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Richard Powell, UKTECH