Recently implemented restrictions on travel and subsistence (T&S) expenses tax relief for contractors are ill-informed and are representative of a Government that doesn’t understand the complexities of the modern labour market.
This is according to Roger Mullin, Treasury spokesperson for the Scottish Nationalist Party (SNP), who warns that T&S changes will have significant far-reaching consequences for both contractors and the economy if they are not overhauled.
The SNP has been a vocal supporter of contractor trade body PRISM’s ‘Yes 2 T&S’ campaign, and recently tabled an amendment in the Finance Bill calling for a strategic review of the tax treatment of contractors in order to better advise future policy.
“This is about the fourteenth change that has been made to the legislation in not all that many years,” Mullin notes. “The fact that the Government keeps enforcing these changes without ever getting it right is surely a reflection of their lack of understanding of the modern labour market.”
T&S restrictions set to impact contractors disproportionately
The T&S changes are inevitably going to impact some contractors more severely than others. Prior to the implementation of the legislation, contracting bodies warned that restrictions would intensify skills shortages in many areas in the UK, with contractors less inclined to travel long distances for work.
As Mullin highlights, the changes are not only going to impact certain regions disproportionately, but particular sectors also look likely to be hit harder than others:
“Firstly, the rural communities are going to struggle, and it will impact the public sector as well as the private sector. For example, if you’re a healthcare sector worker in Argyll, you have to service island communities, which incurs having to travel by ferry and stay places overnight. The notion that that is at all similar to a contractor living and working in inner city London is utterly preposterous.
“It’s also going to harm certain sectors, not least the oil and gas sector in the North East of Scotland. This is a sector that is highly reliant on specialist contractors who often can’t be sourced locally,” adds Mullin.
“Very often these contractors will be flying in from outside of Scotland to carry out specific work. To withdraw expenses relief for these contractors is not only damaging to them and to the sectors they operate in, it’s damaging to the economy.”
Private sector clients to assume additional burden
Looking at the issue from a broader perspective, Mullin observes that contractors aren’t likely to be the only ones impacted by the T&S changes. Private sector clients are likely to be expected to help compensate for the loss of relief by upping contractor rates.
“This is not the only area where the Chancellor has reduced the public sector balance sheet,” Mullin comments. “Every time it happens, private sector employers have to redress the balance by paying people more. The burden is increasingly being shifted onto the private sector.
“At a time when things are very tight in the economy, it could very well lead to a squeezing of the labour market. I don’t want to scaremonger but people could lose jobs as a result, and I don’t think there’s been a proper impact analysis carried out by the Government.”
Mullin also raises concern that the legislation hasn’t been properly communicated, having spoken to several contractors who were unaware of the changes. Highlighting the recent poorly-communicated pension reforms affecting women as another example, he adds that this is a consistent failing of the Government which needs to be addressed.
Wider misunderstanding to blame for legislative changes
According to Mullin, the T&S restrictions are indicative of the Government’s overly simplistic perception of the UK labour market. Flexibility within the labour market has understandably generated more complexity over time. However, Mullin argues the Government is doing little to acknowledge this.
“The Government seems to think we’re still living in the 1950s where people are either traditionally employed, or they’re self-employed and in business for themselves.
“They don’t understand the multiple working arrangements that go between these two positions. That’s why we not only oppose what the Government is doing, but why we have laid a new clause down in the Finance Bill calling for a complete review of this area of the labour market.”
Contracting sector review necessary to inform policymakers
Having failed to find any convincing recent Government research covering the contracting sector, Mullin notes that a wide-ranging review is not only necessary for reassessing the T&S changes, but is also required to better inform future policy decisions.
The SNP proposes a large-scale consultation, seeking input from intermediary businesses, public sector services that utilise contractors and contractors themselves. This, Mullin argues, would help to map out the various different types of employment that exist in the modern labour market.
“This would enable the Government to take a more considered view on what should be the taxation principle to apply to ensure that there’s fairness and justice for all – including the Treasury,” says Mullin. “But it has to be done in an equitable way for everyone.”
In the meantime, the SNP will continue to look at other possible amendments to the Finance Bill to help address the imbalance, and is consulting with a range of representative bodies, PRISM included.
Mullin concludes: “In the absence of a proper Government review, the least we can do is inform ourselves as much as possible in order to try and influence the Finance Bill.”