Personal Service Companies (Select Committee Report)

Baroness Bakewell of Hardington Mandeville Excerpts

Tuesday 17th June 2014 Lords Chamber

[Baroness Bakewell of Hardington Mandeville (LD)]

My Lords, I welcome the Government’s response to the recommendations of the Select Committee and the opportunity to debate the issue. This was my first Select Committee; I found it a stimulating and interesting experience and one that I more or less understood. I thank my noble friend Lady Noakes for her chairmanship and for making me feel at ease. I welcomed the opportunity to participate and to learn from the more knowledgeable noble Lords on the committee. This has been a privilege. I do not therefore feel it necessary to comment on every aspect of our report and the government response to the recommendations, as there are those here today who are much better qualified to do so. I also thank and pay tribute to Patrick Milner and the others who worked so hard on serving the committee.

With regard to recommendation 2, the merging of income tax and national insurance, I welcome the Government’s acknowledgement that these could be more aligned and accept that employers already have to deal with significant amounts of change in legislation. However, I hope that the Government will return to this in the foreseeable future as a positive step forward.

Recommendations 3 to 6 set out a number of measures that are a mixture of clarification and enforcement surrounding tax returns and IR35. I note that HMRC is planning to undertake a full review of its questions and guidance on personal tax returns and RTI declarations. This move is to be welcomed and we wait eagerly for it to take place in the not too distant future—I hope that we do not have to wait too long. There are a number of recommendations where the Government have indicated that a review will take place, but, as other contributors to this debate have pointed out, the IR35 Forum appears to be either undertaking this review or playing a very significant part in it. As a councillor, I know that whenever a review of a service or an activity is undertaken, it is important that there is a level of independence in that review to maintain public confidence in the outcomes. Like others, I would welcome the Minister’s clarification on this matter, with particular regard to recommendations 8, 9 and 10, on the contract review service, the business entity tests and HMRC.

As others have indicated, the majority of the evidence that the Select Committee received was from those representing or dealing with people who had set up personal service companies and who were very well able to negotiate around the rules and regulations surrounding IR35. However, as has been said, we received evidence of how the legislation affected those on lower incomes. This is the whole thrust of recommendation 11. While the Government feel that HMRC has updated its guidance, and it is the Government’s aim to move us through their digital strategy towards becoming not just a paperless office but a paperless nation, this is not suitable for everyone.

Yesterday I was invited to the launch of the report from St Mungo’s Broadway, an organisation assisting the homeless. One stark fact struck us all: 51% of the homeless cannot read or write. While the subject of this debate is not the homeless, it is patently obvious that those working with the homeless are seeking not only to get them housed but also to get them into work in order for them to be in a financial position to maintain their housing. Many of the lower-paid workers, especially those using umbrella organisations, will have poor literacy and numeracy skills and have no access to the internet. While a digital strategy will suit the majority, it will definitely not suit all. I urge my noble friend the Minister to develop other strategies to reach the poorly paid to ensure that they are aware of the implications for them of a personal service company. I look forward to the publication of the remit of the Low Pay Commission this summer and sincerely hope that the use of personal service and umbrella companies is covered—it will be a wasted opportunity if it is not —and I encourage my noble friend the Minister to give a strong indication that this will be the case.

I was disappointed with the response to recommendation 15. While it is convenient for departments to do their own risk assessments, the response leans towards a certain complacency. Many in this House will have examples of where complacency can lead to poor outcomes. The committee was calling for a review; it is to be regretted that this was not accepted. In order for the outcomes from the committee’s work to be productive, it would be extremely beneficial for such a review to take place.

Finally, with regard to recommendation 16, I am encouraged that there is some movement. However, it is not clear whether this is as a result of the work of the committee or whether it would have taken place anyway. It would be helpful if my noble friend the Minister could clarify this.

While I fear that some of my comments have been negative, I nevertheless welcome the Government’s response to our recommendations. There is much to praise and I am hopeful of moving the issue of IR35 forward in a positive way. However, as with all things, the proof of the pudding will be in the eating.