Regulation has added £6 billion in costs since 1996, minister told
Graham,
I would like to rebut some points regarding the issues you have raised. In general, if this is the view of one of the members of our government, we should all have cause for concern.
Regulation
It is irrelevant that some outdated statistics (OECD report December 1999) show the UK as lightly regulated. Economists at Chantrey Vellacott DFK have highlighted a £6 billion increase in extra costs that business has had to carry since 1996 : a 20% increase since this government came to power. You will not convince business by quoting statistics and trying to debunk 'myths' when it is evident on the ground that this is simply not true.
The UK may well be more lightly regulated than its EU competitors, but business is still overregulated in the UK. Forget the statistics : address the mounting evidence that regulation is killing small business.
Improving Working Conditions
Improving Working Conditions through tighter regulations just does not work. The much lighter US labour regulations have improved employment prospects for many, despite the fact that it is easier for businesses to shed staff. It is this very fact that enables them to flexibly employ staff as and when needed, leading to greater productivity, improved economic competitiveness and greater employment. I know of many small businesses in the UK where there is out-and-out fear in employing anyone in case the burden becomes too great (Working Families Tax Credit, increased red tape, tighter regulations on unfair dismissal). The only solution for many is to forget the opportunity to grow.
Business Competitiveness
Governments rarely understand business competitiveness : for business it is a zero-sum game. I win, you lose. I make money, you don't. A slight hiccup in overall competitiveness spells death to thousands of businesses. The amended RIA admits that IR35 will reduce overall competitiveness : in effect it is saying that all IR35-caught businesses will lose and all those who are not caught will win.
IR35
The biggest problem facing both sides of the argument is that the government is not listening. Whilst the government continually talks about what the new rules set out to achieve businesses are trying to be heard above the noise about what the new rules will do. As I stated above, tighter labour regulations wish to achieve improved working conditions, but in reality they stifle employment. The government tells us that IR35 sets out to achieve parity in the workplace between permanent and outsourced workers, but in reality it destroys the self-employed and small business service sectors with one fell swoop.
Let us address some of your comments regarding IR35 in detail :
The practice of using service companies to reduce tax and NICs liabilities has become common
This implies that the sole aim of all small businesses in the service sector is to reduce tax. This is patently untrue. The regulations do not differentiate between companies which are set up solely to reduce tax, and those which are set up to invest, take risks and create employment.
The legislation ensures that workers using service companies but doing the job of an employee pay tax and NICs on a basis which is fair in comparison with other employees
If this were true, then IR35 would include some form of employment protection for this category of workers. IR35 is clearly a tax scam on the part of government, to punish the creative, independent risktaker.
Those businesses which invest, take risks and create employment, will not be affected. The rules ensure that measures designed to support small businesses are properly targeted, and do not go to people who are really the same as employees.
There is nothing in the regulations which ensures this. This is the major contention between those affected and government. There is every possibility that these very types of businesses will be destroyed by the regulations : a fact the RIA at least acknowledges.
Clearly some people may look abroad, though many other countries already have tax rules similar to ours
Two points :
1) the UK does not have the monopoly on devising shoddy legislation or imposing stealth taxes. Just because many countries have capital punishment doesn't make it right. This is a hollow argument and should never be used.
2) No other country has the same rules. Whilst many countries have rules to address the issue IR35 is supposed to address, no other country has implemented it with the same incompetence as this government. Many are, in fact, reviewing the way their legislation works in the light of their own ineptitude.
Finally, I'd like to come back to a point you made Those businesses which invest, take risks and create employment, will not be affected
The company, of which I am a director, at one time had seven employees, invested in their training and the future; took risks and created employment. This business has been utterly obliterated by IR35. There is no salvation : Judicial Review or not. The only compassionate thing the government did was give us some warning, so we could gracefully destroy the livelihoods of our employees.
Take heed : it is not what the government tells us IR35 sets out to achieve, it is the reality that bites. And it will be the reality that will haunt this government unless it addresses this issue immediately.