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Mr. Gerald Bermingham (St. Helens, South): I have been listening to the hon. Gentleman with great care, and I declare an interest as a practising lawyer. I have many clients; I have no single client. I am self-employed. I can offset the costs of going to my place of employment, and the costs of my chambers--what I have to pay towards the bill. I cannot offset anything else, except perhaps the odd course. What is the difference between me and someone in the IT sector? [Interruption.]
Mr. Davey: There are many differences. If the hon. Gentleman looks at the details, he will see that the costs that self-employed people in many businesses can offset against their profits are much greater than those that he mentioned.
Mr. Bercow: Does the hon. Gentleman agree that, as one of my hon. Friends lucidly observed from a sedentary position, one important distinction between the two individuals is that whereas there is no obvious shortage of lawyers, there is an obvious and worrying shortage of IT professionals?
The Minister made a comparison between an employed nurse and a self-employed IT consultant. That is like trying to compare apples with pears. A more correct comparison would involve a nurse working from a nursing agency. The Minister would find that under tax law, that nurse is seen as self-employed and would thus be subject to exactly the same tax rules as the self-employed IT contractor.
That is the basis of our argument, and the Minister must not try to confuse it. I refer her to a case--Clark v. Oxfordshire Health Authority 1998--in which the Court of Appeal ruled that a nurse working for a nursing bank was indeed self-employed for tax purposes. Let us not have false arguments from the Treasury Bench tonight, please.
A self-employed person--a nurse or an IT contractor--is subject to a different tax and benefits system from those who are employed. That is a straight fact, which the Government should acknowledge. The self-employed are liable to corporation tax if they make real profits, and they will not get the benefits that employed people get. The distinction between being employed and being self-employed is crucial and of long standing in our taxation system.
The Government are trying to change that through a hidden tax increase. It will be more damaging to the economy in the longer term than any of the other tax increases that they have tried to impose, because it will damage the key sector of the future British economy.
Mr. Frank Doran (Aberdeen, Central): The attack that we have heard from the two Opposition Front Benches is familiar to all of us who have been following the matter. The Liberal Democrat spokesman was a little more sensitive to what the Government are attempting to do, but we have just heard a recitation of all the claims made by the Professional Contractors Group, which most of us received in our mail bag, without any attempt at analysis or proper examination of the system.
If the Government pursue their agenda to introduce a fair tax system, which we all support, and business taxes are progressively reduced to become the lowest in Europe, loopholes need to be closed. I support totally the principle behind the Government's aim, but I shall deal in detail with one aspect of the process that causes me concern in my constituency.
Most of the debate on the issue so far in the Chamber and earlier has concentrated on the IT industry. That is developing into a global industry, and the reality of any global industry is that people will go where the work is. It is nonsense to suggest that hordes of IT specialists will uproot themselves and their families to go to other countries on the assumption that those countries do not charge tax. The hon. Member for Croydon, South (Mr. Ottaway) appeared not to be aware that such countries have similar legislation in place. People will go where the work is, and it is clear that much of the work is in Britain, which is spearheading a lot of development.
The comments that have been made to me fall into two categories. There are the honest contractors who say, "Yes, this has been going on for years. We wondered when you would catch up with us," and there are the others who mouth the sort of comments that we have heard from the Opposition Front-Bench spokesman. We need a little reality and balance.
I want to concentrate on a particular issue. I want to talk not about the IT industry, but about the oil industry. Aberdeen is the centre of the European offshore oil industry. As most hon. Members will know, oil is a global industry. It is also a volatile industry. For example, in 1985-86 there was a substantial downturn in the industry and the oil price went down from about $32 a barrel to $9 almost overnight. About 50,000 jobs were lost, but, because they were spread throughout the country, there was not quite the outcry that we have seen with other large-scale industrial closures or job losses. However, Aberdeen was seriously affected.
The oil industry responded quickly, altering the basis on which work was carried out in Aberdeen. I cannot give percentages because each company varies, but a large proportion of people now employed in the oil industry are contracted. The industry uses them to provide flexibility for the bad times. For example, at the beginning of last year, when the oil price virtually halved overnight from about $20 a barrel down to $9 or $10, the redundancies were almost invisible because contractors were simply shaken out of the industry. Their contracts were terminated. All the contractors who stayed, from the large contractors employing hundreds, sometimes thousands, of people, down to the one-man bands that we have talked about tonight, were forced to take substantial cuts, some as high as 20 per cent., which were imposed by the oil companies across the board with no questions asked. That was the requirement if people wanted to keep a contract. Contracts are written in a way that ensures that oil companies have the power to do that. It gives the oil industry flexibility and that is the price that people who work in the oil industry have to pay.
The oil industry is international. I am used to seeing in my surgery people who have just come back from contracts abroad--from Kazakhstan, the Gulf of Mexico, Australia and Indo-China. They work all around the world. We already have a global industry, and people are used to moving around in it. The oil industry is a mature industry. Some people say that it is in decline; it is, but it is a slow decline. However, it is clear that its future will depend on the sort of contracting arrangements that we have debated tonight.
One of the issues that came up at the meetings that I had with contractors in my constituency was employment status. The hon. Member for Kingston and Surbiton (Mr. Davey) talked about employment aspects. One of my concerns about the Government's proposals is that there is a suggestion in the legislation that there is an element
When I discussed the issue with the oil industry and the employment agencies in my constituency, I asked why it was a requirement that employees who worked as contractors should establish companies. Only companies are accepted. All are forced to form personal service companies to provide the contracting skills that the oil industry wants. The simple reason is that the Income and Corporation Taxes Act 1988 places a liability on employers to pick up the tab for any failure on the part of an employee to pay national insurance or PAYE contributions. The oil industry, the contractors who work for the oil industry, and the employment agencies that are the direct line of employment for my constituents who work as contractors in the oil industry, are not prepared to take that risk, so my constituents are forced to form companies.
In discussions with my constituents, collectively and privately, many have made it clear to me that their choice would be, first, obviously, to have a proper job with proper pay, paying PAYE and national insurance contributions like everyone else. That option is denied to them because of the nature of the oil industry. Their second option would be to be self-employed without the hassle of running a personal service company and having to make returns and employ accountants, and to obtain the reliefs to which they would be entitled as self-employed people. However, the system does not allow for that because the employing companies are not prepared to take the risk.
My concern is that service companies in my constituency have no choice. Many see the advantage of self-employed status, but because of the effect of the 1988 Act, that option is not available to them. Therefore, while reiterating that I support the aims and principles of the legislation, I ask the Minister to consider that point.