Personal Service Companies

Oral Answers to Questions — Treasury – in the House of Commons at 12:00 am on 29th March 2001.

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Photo of Graham Brady Graham Brady Shadow Spokesperson (Work and Pensions) 12:00 am, 29th March 2001

If he will make a statement on his policy on the taxation of personal service companies. [154599]

Photo of Mr John Wilkinson Mr John Wilkinson Conservative, Ruislip - Northwood

If he will make a statement on his policy on the taxation of personal service companies. [154600]

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

We want to make the United Kingdom the most competitive environment for business in the world. Our policy on the taxation of personal service companies helps to do this by making sure that the tax measures intended to support genuine businesses can be properly targeted at those businesses and do not, instead, go to those that are essentially no different from employees.

Photo of Graham Brady Graham Brady Shadow Spokesperson (Work and Pensions)

Is the Minister not ashamed of having introduced a stealth tax on enterprise? Is she not ashamed of having introduced a tax that will drive skilled information technology professionals overseas? What is her estimate of the number of those professionals who have already been driven out of the country by her proposals?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

The legislation is fair, proportionate and compatible with the United Kingdom's obligations under EU legislation. There is no evidence to support the allegation that there is a flood of IT specialists leaving the UK. The hon. Gentleman should look at some of the various publications; for example, an article called "Contractor UK" by David Houston of Glow International Ltd. He warns IT specialists that despite the widespread press speculation concentrating on UK contractors post-IR35, it is a fallacy that they would be better off overseas. He reminds them that in western European countries where there are vacancies for freelance professionals, in every case taxation is higher than in the UK. The hon. Gentleman's allegation that thousands are leaving is not the case, and his suggestion that the tax proposals are unfair is not the case. He should bear in mind that the measure is to deal with an avoidance mechanism in the tax system whereby those working through personal services companies were paying tax and national insurance at the rate of 21 per cent., whereas an employee earning the same amount in the same circumstances was paying, on average, 35 per cent.

Photo of Mr John Wilkinson Mr John Wilkinson Conservative, Ruislip - Northwood

Nobody in this House, and certainly no independent IT specialist or anyone running a consultancy company outside this House, will be impressed by the verbose filibuster of the Paymaster General in response to the sensible question from my hon. Friend the Member for Altrincham and Sale, West (Mr. Brady). Does she deny that the Government are looking into changing the immigration rules to attract IT specialists and other high technology personnel, who could inject entrepreneurship in the UK? Is not it high time that this cretinous imposte was removed? Is it not thoroughly welcome that the Conservative party is proposing to do just that in its election manifesto?

Photo of Michael Martin Michael Martin Speaker of the House of Commons

Order. Before the Minister replies, may I appeal for a shorter answer?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I will, of course, do your bidding in this Chamber, Mr. Speaker.

It is true that the Government, along with the Governments of other European countries, are looking at visa applications. The people concerned are coming to this country knowing our tax regulations, and knowing full well that they will be very well off.

Photo of Mr Nigel Beard Mr Nigel Beard Labour, Bexleyheath and Crayford

May I congratulate my hon. Friend on plugging this tax loophole? Does not the Opposition's attitude to this matter reveal them to be, as always, the tax dodger's friend?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

The proposals contained within IR35 are intended to close a tax loophole that meant that a huge amount of resources was being lost to the UK Exchequer. Opposition Members who so gladly say that they will abolish the measure need to explain to the House where they would find nearly —1 billion of expenditure, which would result from their actions.

Photo of Mr Brian White Mr Brian White Labour, North East Milton Keynes

My right hon. Friend will be aware that IT contracting has gone through ups and downs. particularly when the Tories changed the tax rules several times in the 1980s. The key area for those companies is investment in skills and continual reskilling. Will she give an assurance that she will look to provide investment in those areas for such companies?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

The suggestion that IR35 is targeted only on IT consultancies is not true. It is to deal with a mechanism for service companies where those involved were essentially employees. A legitimate business that is not caught by the regulations in IR35 can continue to be able to invest in training, as it could before IR35.