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IR35 (IT Contractors)
4. Dr. Vincent Cable (Twickenham): If he will make a statement on his recent discussions with IT contractors' representatives on IR35. [112215]
The Paymaster General (Dawn Primarolo): I met representatives of the professional contractors group in December. I explained to them why the Government believe that it is necessary to prevent avoidance of tax and national insurance contributions by workers using personal service companies.
Dr. Cable: What advice has the Minister received from the Prime Minister's adviser on e-commerce, who has publicly expressed his disquiet about the impact of the tax on our knowledge-based industry? How does the Inland Revenue propose to treat the tens of thousands of
IT contractors, who are honest and do not avoid taxation, but have great difficulty in distinguishing between employed and self-employed status, as they are now required to do, because of the complexities of IT contracts?
Dawn Primarolo: First, it is not true that the e-commerce envoy has been making representations to the Treasury about relaxing the rules. He made it clear that he supports the Government's policy of stopping unfair tax and national insurance avoidance.
Secondly, IR35 deals with avoidance in cases in which one employee in a company avoids tax and national insurance. That means that such employees do not pay tax and national insurance, which are paid by other people who are self-employed or on pay-as-you-earn pay. The hon. Gentleman should explain why he is prepared to support a group of workers whose companies their own advisers describe as tax havens. Why should they be allowed to continue to cheat honest taxpayers?
Ms Julia Drown (South Swindon):
A small IT business in my constituency has told me that it fears that it will not be able to survive and continue to prosper under the new IR35 rules. Will my hon. Friend liaise with colleagues in the Government to ensure that the Inland Revenue and the Small Business Service work with such companies to ensure that they can continue to be successful?
Dawn Primarolo:
Frightening and undermining the legitimacy of the many hundreds of thousands of legitimate companies that operate as service companies is part of the scare tactics of those who seek to avoid tax by using service companies. The Inland Revenue continues to advise those companies that will be caught by the rules through a helpline and a comprehensive website. We are ensuring that honest taxpayers will be strengthened by the rules, not undermined, and that people compete on skills, not by using the rules only for tax advantage, as the few are doing.
Mr. Richard Ottaway (Croydon, South):
Is it not clear from yesterday's written answers that the Minister has absolutely no idea of the damage that IR35 is causing to the knowledge-driven economy? The Government's manifesto at the last election said that they would
Dawn Primarolo:
Perhaps the hon. Gentleman needs to be reminded of everything that the Government have done for small businesses: the small business company rate cut; the new 10p corporation tax starting rate; first-year capital allowances; enterprise management incentives; and help through the Small Business Service. He still has not told the House why his party supports a few workers who use their companies to avoid paying
Give Britain's entrepreneurs and small businesses the backing they deserve.
Instead, we have IR35--a stealth tax introduced by the back door. The result is uncertainty over self-employed status, a lot of competitiveness and a brain drain to more stable tax systems. Did not the biggest gaffe come from the Minister for Small Business and E-Commerce, who said that she would use a recent visit to the United States to try to woo back British expats? Looking at the chaos caused by IR35, who in his right mind would come back to this mess? It is pain without gain.
Beg, borrow or steal to avoid paying higher tax rates this year. Next year you will not be able to avoid it. You should recognise that your company . . . is a tax haven.
He has to realise that, as we have rules in the system for self-employed and PAYE employees, it is not unreasonable to expect those few who are avoiding the rules to comply with them.
EU Markets
8. Ms Dari Taylor (Stockton, South): If he will make a statement on the importance of markets in the European Union to firms in the north-east. [112220]
The Chancellor of the Exchequer (Mr. Gordon Brown): It is estimated that 14,500--one in three--small and medium-sized enterprises in the north-east have links with Europe. Government policy towards the euro is to prepare and decide. Today I am placing in the House of Commons Library and publishing the second draft national changeover plan. The euro standing committee, which includes the Governor of the Bank of England and the president of the Confederation of British Industry, met on Tuesday and discussed the draft changeover plan. In the draft plan that we are publishing today, which is in the Vote Office, we itemise and update the preparations being made.
Ms Taylor: I welcome my right hon. Friend's statement on the priority that the Government give to the changeover preparations. Will he acknowledge that more than 500 jobs in my constituency rely on a good and positive relationship with the euro? In the northern region, the figure goes up to 150,000 jobs, so it is very significant to us. Will he also acknowledge that business in the north-east sees the Tories' anti-European stance as undermining jobs and investment?
Mr. Brown: I am grateful to my hon. Friend. I much enjoyed my visit to her constituency this week, when I met many business men and women who know the importance of our constructive links with the European Union, and know how many firms depend on the continuation of that trade.
Three million jobs depend on our links with the EU. As my hon. Friend said, our policy on the euro is consistent with our making preparations and decisions, and subjecting that policy to the economic tests that we have laid down. Unfortunately, even if it were in the national interest for us to join the euro, the Conservative party would refuse to do so for reasons of dogma.
Mr. Nick St. Aubyn (Guildford):
By how much does the Chancellor want sterling to fall from its present level against the euro?
Mr. Brown:
The hon. Gentleman knows very well that we do not comment on the individual movements of sterling. He also knows that I appreciate the concerns of exporters and manufacturers about what has been happening in the euro area in relation to sterling--but the manufacturers to whom I talk in the north-east know that
Working Families Tax Credit (Scotland)
9. Mr. Desmond Browne (Kilmarnock and Loudoun): How many claims for working families tax credit have been received from Scotland since its introduction. [112221]
The Paymaster General (Dawn Primarolo): The number of claims for working families tax credit received from Scotland is not readily available, but it is estimated that 67,000 families in Scotland had been awarded it by the end of January 2000.
Mr. Browne: That means that 67,000 families in Scotland are better off by an average of £1,250 a year than they were last year.
As my hon. Friend will know from Government statistics, my constituents are among the lowest paid in the country, with an average wage of £71 a week. That statistic and others suggest that many families in my constituency who qualify for working families tax credit do not claim it. Will my hon. Friend undertake a second phase of publicity before the new credits are introduced in April, so that those families can obtain the information that they need--information that would make a difference to their lives, and help them to lift themselves and their children out of poverty?
Dawn Primarolo:
I am sure the House is shocked to learn that £71 a week is the average wage in my hon. Friend's constituency. That demonstrates the importance of the Government's policies on the national minimum wage and working families tax credit, and our reforms of national insurance, to low-paid workers who want to raise their incomes.
We naturally want to ensure maximum take-up of working families tax credit. As my hon. Friend probably knows, about 60,000 children have already benefited from the Budget measures, but I will look carefully at the rate of take-up, and will consider what my hon. Friend has said about the need for further publicity to ensure that all who are entitled to working families tax credit receive it.
Mr. John Bercow (Buckingham):
Why does the Paymaster General not accept the verdict of Filip de Kam, a tax expert from the Organisation for Economic Co-operation and Development, who argues that the Government are breaching international accounting conventions by describing working families tax credit as a tax cut when in fact it constitutes a hike in public expenditure? Is the hon. Lady proud of the fact that more than 50 per cent. of the cost of compliance with the WFTC--which is a recurring cost--is to be borne by small businesses, including small businesses in Scotland that have already been savaged by this Government, which employ fewer than 100 people?
Dawn Primarolo:
First, the hon. Gentleman is wrong to assert that the Government are breaching OECD rules. Secondly, he is entirely wrong in what he says about the benefits involved. This is the man who opposed the introduction of the minimum wage and said that it would
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