The government must stop its point-scoring, headline grabbing and frankly ‘cheap’ campaign to brand limited company contractors as morally dubious tax avoiders. Instead, it should be recognising and rewarding these very same contractors as risk takers who are supporting the UK’s entrepreneurial engines of growth.
The mounting obsession with tax, crowned by Treasury minister David Gauke’s castigation of payment by cash, and the mystical ‘fair share’ we should all be contributing, is hiding the real issue.
This is that HM Government has to choose its economic strategy: tax or growth. It can’t have both, because excessive taxation restricts the amount businesses can invest and drives away the entrepreneurs who will build the high growth businesses of tomorrow.
Growth should be a much easier approach for UK plc to earn its way out of the financial hole it finds itself in. But frightening away the wealth and growth creators, and their essential support infrastructure in the form of highly skilled contractors and freelancers, by wielding big tax avoidance sticks won’t lead to growth.
A 1% increase in growth delivers a much greater return to the Treasury than a 1% increase in taxes. And if the government was in any doubt about this, it should have been cleared up by the powerful lesson it has recently been given by the oil and gas sector.
Indeed, the Treasury is to be applauded for its latest tax concessions for gas production in the North Sea, which industry body Oil & Gas UK predicts will create 4,000 new contracts and jobs and £600m for the exchequer. Why can’t the Treasury, and other parts of government, create growth initiatives like this more often?
Tax, on the other hand, forces highly mobile capital and knowledge to simply relocate. The public sector will shortly experience the impact of such a brain drain if it goes ahead with implementing its new ‘off-payroll’ rules, the shocking details of which were leaked to PCG.
These rules, alongside the consultation on the proposed controlling persons’ legislation, are a knee-jerk reaction of an administration solely pandering to an ill-informed media and a public that it wishes to offer diversion to. After all, it’s much easier to get everyone talking about “morally objectionable tax avoiders” than it is to face up to your own miserable failure on economic growth.
The net result of the government’s fiddling with the edges of the tax system will be to raise trivial amounts of tax, yet cause untold damage to public sector service delivery and to the businesses in desperate need of the skills that contractors and interims can deliver.
All the evidence points to the UK’s flexible workforce increasing and, although these workers don’t pay tax in neat and tidy little packages each month via Pay As You Earn (PAYE), government should be embracing this valuable asset, and not attacking it.
It is growth, and not tax, that the UK economy needs. It is time the government made its choice. We can only hope that we do not all suffer the consequences of it choosing the wrong path.