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Mr. Ottaway: The hon. Lady thinks that that is a reason to introduce IR35, but that is entirely in opposition to the vision of the Conservatives. If those are the conditions in the Netherlands and the United States, why does she not abandon the measure and so get IT consultants to come here and meet the requirements of the Department for Education and Employment?

Mr. Campbell-Savours: Did the hon. Gentleman already know what my hon. Friend the Paymaster General has just told him?

Mr. Ottaway: I shall be candid: no, I did not. However, the point is that we live in a competitive economy and we have to compete against other countries. It has been recognised that there is a shortage of IT consultants in this country, and we are going to have a problem unless we can attract more of them here. Introducing IR35 is not the way to do that.

Mr. Beard: Is the gist of the hon. Gentleman's case that there is a shortage of computer industry workers, some of whom have gone abroad, so we should try to attract them back by making tax dodging easier?

Mr. Ottaway: I am merely saying that we should leave the tax system as it has been since it was started, not introduce the new measure. That is not to make tax dodging easier.

The Government must reassess their attitude to professional contractors in this country. They do not recognise that the use of freelance contractors provides businesses with skills that are not available in-house. They do not recognise that many contractors became freelances as the result of experiencing redundancy in their middle years and realising that they stood little chance of regaining permanent employment because of changes in working practice and age barriers. They do not realise that a limited company provides the only reasonable way in which to compensate for contractors' lack of job security.

We support the Government in their objective of achieving fair taxation, but a system of taxation must be workable and the Government must be aware of its consequences. However, there are plenty of flaws in the Bill. Let us take the case of a professional musician who plays at a recording session in the morning, does a solo at a memorial service at lunchtime, rehearses in the afternoon with a group of friends with whom he occasionally fulfils engagements, and performs in the evening with his main employer, the orchestra with which he has a regular contract. The system is simply not workable in such cases: is the Revenue going to insist that

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four separate contracts apply? For Ministers to defend such a ragbag of nonsense is bare-faced cheek and lacks credibility.

One need only read a little further into the legislation to discover an even bigger nonsense. Paragraph 4 of schedule 12 extends the legislation to partnerships where the worker, as an individual or in combination with relatives, is entitled to 60 per cent. or more of the profits of the partnership. Its definition of relative refers to "husband or wife" and some other relatives. However, paragraph 21(4) states:


We have a double first. Hon. Members will have noted that the legislation does not apply, for example, to homosexual couples. We know that the Government are hostile to marriage, but that is the first time that common law relationships between a man and woman have been recognised in the tax system, and the first time that homosexuality has been treated as an exception under legislation. The Government must state whether that is intended or an oversight.

It is clear that the measure has been introduced in a rush. As I said, the Conservative Government rejected it several times as unworkable and liable to erode Britain's competitive position and to destroy labour market flexibility, but the current Government clearly do not have the vision to recognise the implications. IR35 is a turnover tax which creates uncertainty. It is being introduced with minimum consultation, and those representations that were made have been ignored.

We should ask whether it will produce the revenue that the Revenue expects or hopes for. A leading computer specialist, Gurcharanjit Sian, told the Electronic Telegraph:


His emigration will mean that we lose his e-commerce expertise to another country. In addition, he is recruiting 100 Britons with similar expertise who have been hit by the same rules because they have similar businesses; they will go abroad with him. Mr. Sian adds:


I conclude with the arguments advanced by Mr. Alan Broke, a former president of the Chartered Institute of Taxation. In last year's Hardman lecture, he suggested:


I could not have put it better myself.

The legislation is muddled. The measure breaches Labour's manifesto commitments, it is a bureaucratic nightmare, it erodes Britain's competitiveness, it will lead to a brain drain and it will not raise the revenue that the Government hopes for. The Government should delay

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implementation to give them time to reconsider the damage they are causing. That is why we shall vote against the clause tonight.

Mr. Edward Davey: I associate the Liberal Democrats with many of the remarks made by the hon. Member for Croydon, South (Mr. Ottaway). We shall vote against the provision because it is extremely pernicious and damaging to British industry's long-term wealth creating sector--the e-commerce sector. The Government came to power saying that they would champion the knowledge economy, and we have heard many speeches and read many publications in which they have said that they want to back the knowledge economy, the IT industry and e-commerce. However, the measure goes in precisely the opposite direction; it is a huge own goal for which our economy will pay dearly if the Government do not take the opportunity to change their mind.

I could recount the saga of the shambles that the Government have created, but I shall not detain the House for too long exploring every detail. When the Chancellor of the Exchequer made the initial announcement in the 1999 Budget, the system was even dafter than the current proposals. We had an accreditation system, which would have placed responsibility on the client in various contractual relationships.

The system was a nightmare and belatedly, in September, the Government were forced to do a U-turn on many of the original proposals. That U-turn was forced on them as a result not only of lobbying by the industry but of hard work, particularly by my hon. Friend the Member for Twickenham (Dr. Cable), whom I congratulate. He worked very hard with Members on both sides of the House in lobbying the Treasury to back down.

Unfortunately, in its announcement of 23 September, the Treasury failed to go far enough. It has helped some groups in the IT industry. It has helped the large companies and larger partnerships which earn millions of pounds a year, but it has not helped the small business or contractor or the sole trader. In failing to help the small business, the Treasury has again misunderstood the nature of the new economy and how the IT sector works.

The IT industry is very competitive and innovative, and relies on the small business--the one, two and three-person business--to generate the drive forward. Technology changes the parameters of the industry every three months; every month, there is a change. One cannot rely on larger companies and partnerships to remain on top of that. One needs the small business and the one-person contractor to provide the innovation and drive behind the new business. In failing to understand that, the Government have shown their ignorance of the way that the economy of this country and of the developed world is going.

Mr. Beard: I am following the hon. Gentleman's argument, but I do not understand why he seems to believe that someone who is employed in a major company in a particular role should be able to leave to set up a personal service company--for all sorts of reasons; perhaps for some of those that have been mentioned--and

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enjoy tax or national insurance privileges as a result. Surely the hon. Gentleman is arguing that there should be neutrality on either side of the boundary.

Mr. Davey: The hon. Gentleman raises the issue of whether there is tax avoidance and abuse of the system. I think that all parties agree that some abuse has occurred. The question is how we stamp out that avoidance while allowing genuine contractors to go about their legitimate business and provide the country's wealth. If he looked at some of the correspondence that I have received, he would see that many businesses in my constituency--and, I imagine, in his--will be caught by the proposal. The Government are using a sledge hammer to crack a nut. There is no doubt that they know that but are failing to act. One must question their motives.


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