Contractors, taxpayers and the public sector have all been badly hit since the off-payroll rules were introduced a year ago. If these ill-thought-through and hastily introduced rules can wreak so much havoc after only 12 months, it’s frightening to think of the long-term damage they may cause.
They were introduced to address a perceived problem, that there were ‘civil servants’, who were of course contractors and not employed government workers, not paying tax like employees. It was the ‘Ed Lester affair’ that kicked it all off.
We know, of course, that increasing tax revenues wasn’t really why the rules were introduced. The real reason was so the government could be seen to be doing something in the face of criticism by the Public Accounts Committee (PAC), its high profile, if sometimes ill-informed, chairman Margaret Hodge, and the media.
Of course, the PR-focused coalition itself had instigated hysteria against legal tax avoidance with its claims that “we’re all in this together”, before kicking off tax policies proving just the opposite.
We warned at the time that any new ‘off-payroll’ legislation or guidance would be rushed and unworkable. We also highlighted that contractors are a vital element of the public service delivery mix, bringing essential skills that the civil service does not have.
These workers with such sought-after skills have the freedom to trade in whatever model the law allows. If that means they don’t want to be employed, then that is their prerogative.
But the government pressed on regardless and the result has been the off-payroll rules.
Now, twelve months on, the result is as we predicted – perhaps even worse. We have evidence that not only have the rules not resulted in additional revenue for the Exchequer, but they have also spectacularly backfired:
- Depriving the public sector of vital skills
- Displacing UK workers in favour of non-EU workers with no discernible skills advantage
- Costing the taxpayer significant sums of money
- Forcing contractors out of the public sector, so threatening the livelihoods of a vital element of our labour force
- Reducing, and not increasing, the tax yield.
There’s no point asking the government to abolish the rules. After all, like most governments, the coalition blindly pursues unworkable, self-defeating, expensive and destructive policies on issues frankly much more important than this one.
However, we have been told by contractors within the public sector that underpinning much of the failure of the off-payroll rules and resulting damage is the lack of clear guidance from the Treasury and HMRC to the government departments charged with enforcing the rules.
So, rather than consider another humiliating U-turn, what ministers could do is demand that HMRC firms up its deliberately vague guidance. Perhaps that might be something constructive for a change that Hodge and her colleagues on the PAC could champion.