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Sir Nicholas Lyell (North-East Bedfordshire): In the past three years, there has rarely been a subject like this on which so many thoughtful and intelligent constituents have come to see me to discuss matters so deeply. Ever since the IR35 proposal was put forward by the Government, I have been visited by a series of constituents, mostly working in the IT industry, who are deeply concerned about the proposals and whose fears have not so far been assuaged by the answers that I have received from the Minister.

The net point made by the Chief Secretary is that nobody will be caught by IR35 who would not be deemed to be an employee under existing employment law. That is stated in the letters that I have received in reply to the many letters that I have sent on behalf of constituents. However, my constituents are not satisfied that that is the case and, unless the Minister can satisfy the House that it is, the proposals should be removed. That is why I support the Opposition's proposal to delete clause 59.

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The contractors in the IT sector who come to visit me make the point that they in no way seek to avoid tax; they seek to provide services to an industry that demands flexibility in a way that enables them and their employers--I do not use the word strictly, but those who use their services--to operate in the most effective manner. They point out that they always take a reasonable salary from their service companies, and that those service companies pay the usual tax and insurance on salaries. They say that they have no knowledge of the system whereby someone is an employee on Friday and self-employed on Monday morning. One of those who came see me is an experienced chartered accountant, who acts for many people in the IT sector. He, too, has never come across the Friday evening, Monday morning syndrome, that is part of the Government's case.

Contractors point out that they either work for several companies that use their services, or for one company at a time, for periods that are not easy to predict. That requires the flexibility to be able to move out of a particular sort of employment and take the risk of seeking new employment. As I said earlier, the contractors use service companies, which means that they pay tax and national insurance. Those companies are similar to the examples, such as that of the nurse, that Ministers cite when pushing their case. It was rightly pointed out that an agency nurse would make a better comparison.

The contractors stressed the unreasonableness of the 5 per cent. expenses limit. I should like to know whether the Paymaster General intends to stick to that. I am not sure whether she is catching my remarks. If we consider the costs of accountancy, purchasing and maintaining computers, and training, it is unrealistic to expect them to be met on 5 per cent. The Government should take note of that. One contractor said that his training costs regularly totalled £2,000 a year.

It is not fair to treat those who work for a service company simply as employees. They are treated as employees without the benefits that ordinary employees receive. If the contractors whom we are considering were employed, an employer would pay his share of their national insurance contributions. If they were made redundant, they would receive redundancy payments. They do not receive such payments under the system that they use. If they were unemployed, they would receive jobseeker's allowance and the benefits attendant on that. As employees of their companies, they have to forgo those benefits. The Government therefore do not treat like as like.

The Government claim that the proposals are tax neutral. For the reasons that I outlined, they are not. In an artificial way, a specialised IT provider will pay more tax than if he were an employee. The proposals are not, therefore, tax neutral.

Mr. Bercow: Does my right hon. and learned Friend agree that, if the proposals turn out to be tax neutral, it will be the consequence not of a deliberate Government policy decision, but of several contractors ceasing to trade and thus not paying tax?

Sir Nicholas Lyell: My hon. Friend makes a good point. It leads to a point that many hon. Members have

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made and to which the Government would do well to pay heed. People are voting with their feet and leaving the country or seriously considering doing so. That is damaging to the country, and will lead to a reduction in the Government's tax take. Hon. Members of all parties have heard highly intelligent constituents, who plainly pay a fair proportion of their income in taxation, express revulsion at the Government's proposals. That would not happen unless there was a serious reason for it.

6.45 pm

Although in the past six months the Government have been pigheaded and refused to give ground, there is a chink of light. The letters that we receive from Ministers encourage people to discuss the matter with their tax inspectors to ascertain whether they can find a way through. Perhaps that means that the Government do not want to be seen to back down, but are giving a nod and a wink to tax inspectors.

The proposals have caused genuine anxiety to a highly intelligent and undoubtedly modern sector in the business community, which the country badly needs. The Government use the expression "modernisation" so often that it makes many of us feel ill. They ought to reconsider the proposals carefully. Unless they are satisfied that those proposals will not do the damage that my constituents fear, they should revise them.

Mr. Fabricant: The Government propose the measure for only one reason: not to close loopholes but to raise money for the Treasury. The clause is not tax neutral; it will raise £900 million. As I said earlier, it will raise that money from the companies, organisations and people whom we need to keep in this country. We need people who are not risk averse, who work in skilled high-tech, sunrise industries and know about computers. Unlike the Prime Minister, who, as a stunt, tried to show that he knew all about e-commerce, but failed to find the "T" for "Tony" on the keyboard, we are considering people who know how to generate not only software for computer companies but income for the nation.

The Paymaster General simply does not care. I sent her 11 plastic bags, which contained more than 3,500 names of people who said that although they were not experts in tax, they were experts in computers and their companies. They said that they would leave the country or, even worse, remain in the country but invoice from abroad and thus deprive the Revenue of money if this nasty clause were passed.

Mr. Barry Gardiner (Brent, North): Is the hon. Gentleman trying to undermine the arguments of Conservative Front-Bench Members? He pointed out that the Government will raise £900 million in revenue through the measure. However, Conservative Front-Bench Members argued that the very 350,000 people to whom he referred, and others, would leave the country and that the money would not be raised. Does the hon. Gentleman intend to undermine Conservative Front-Bench Members, or does he simply fail to understand their arguments?

Mr. Fabricant: The hon. Gentleman would have made a good intervention if he had kept to the point. I realise

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that he is only a new boy, but, in future, if he wants to make a killer point, he should make it short. Rambling on a bit gives one time to think.

Mr. Gardiner: Answer the question.

Mr. Fabricant: I shall answer. The hon. Gentleman is an opera singer and clearly creative. His mind wandered during my introduction. I mentioned earlier in an intervention that the figure of £900 million came from the Red Book, which makes a prediction. Perhaps the hon. Gentleman has recently appeared in the Chamber, or perhaps only his body has been present while his mind has been elsewhere, but as my right hon. and learned Friend the Member for North-East Bedfordshire (Sir N. Lyell) and others, including me, said, the Government probably will not raise the money because people will go out of business or go abroad.

The Government cannot claim ignorance because people have gone to see the Paymaster General. She has not always been in a particularly listening mood, but people have talked to her and she has not responded.

Mr. Bercow: Is my hon. Friend aware that my constituent Mr. Mark Gillis, a software consultant, has just ceased to trade? At the beginning of April, I wrote to Treasury Ministers on his behalf. The Paymaster General signed a reply dated 26 April, which she appears not to have read and which shows no acknowledgement of the fact that that individual is one of her first victims.

Mr. Fabricant: Mr. Mark Gillis may be one of the first, but I am sure that he is the first of many--[Interruption.] This is no laughing matter. He is one of the very people we need if this country is to succeed in the 21st century.

Mr. Bercow: This is no laughing matter for Conservative Members or, in fairness, for Liberal Democrat Members. Does my hon. Friend agree that it is disgraceful that Labour Back Benchers find it hilarious that someone has ceased to trade, losing an invaluable business? Such is their intelligence.

Mr. Fabricant: Such is Labour Back Benchers' understanding of business. Those who have spoken are barristers, solicitors or social workers. Those are all great careers in themselves, but such people are risk averse.

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