Portillo says IR35 will hit 66,000 entrepreneurs and risk IT lead

Tax puts IT sector at risk

By Michael Portillo

Published: April 3 2001 17:07 GMT | Last Updated: April 3 2001 17:29 GMT

In the coming weeks, Gordon Brown's spin-doctors will be busy hyping the various measures he has introduced since he became chancellor. But some measures are not hyped or spun. Some are not even referred to by Mr Brown in parliament.

Take IR35, for example, which is heaping an extra £350m in tax and National Insurance Contributions onto skilled specialists and consultants, particularly in the information technology sector. The tax got its name from an Inland Revenue press release - number 35 - which was quietly released while Mr Brown was telling the House of Commons about more favourable tax measures. On Monday a High Court judge said the tax had been concocted "without any adequate research".

According to the government's figures, IR35 will hit up to 66,000 entrepreneurs currently working in Britain, many of them in the IT sector. As a direct consequence of the tax, many contractors have said they would consider leaving the country.

Mr Brown's proposals show a lack of understanding of the knowledge-based economy. This tax will clobber bright mobile young people, who can easily fly off to find work elsewhere where taxes are less punitive. As a result, Britain's competitive advantage in the IT sector is being put at risk.

The government says that IR35 is all about clamping down on tax avoidance. Of course, there are some cases of tax avoidance that need to be tackled. But IR35 hits too many genuine entrepreneurs who should be encouraged by their government, rather than penalised. That is why Conservatives would repeal IR35 and replace it with targeted measures to combat abuse.

In Labour's business manifesto, launched before the last election, the party promised to "give Britain's entrepreneurs and small businesses the backing they deserve". But the warm words will do little to improve the chilly climate that Labour is creating for business and entrepreneurs - £5bn a year of more taxes, another £5bn a year of extra red tape. Last year alone Labour introduced a record 3,865 new regulations - 10 a day.

I know I am not alone in my views. I have been contacted by organisations such as the Professional Contractors' Group, which says that the effect of Mr Brown's actions will be to "kill the enterprise culture" in this country. I was appalled to learn that although some multinationals were involved in the government's consultations, the PCG - formed to represent British entrepreneurs - was not asked for its views.

IR35 does not make economic sense. A survey quoted in the Financial Times found that some 30,000 knowledge-based workers would be forced overseas, with £1.9bn fees being lost, at a cost to the Exchequer of £760m.

By attempting to woo the IT world while quietly introducing IT stealth taxes, the government is saying one thing and doing another. It is time Labour actually delivered on what they promised and abandoned this damaging new stealth tax before it does irreparable harm.

The author is shadow chancellor of the exchequer