Personal Service Companies (Select Committee Report)

Lord Myners Excerpts

Tuesday 17th June 2014 Lords Chamber

[Lord Myners (Non-Afl)]

My Lords, I speak as a member of the Personal Service Companies Select Committee. It was a privilege to sit on the committee, not least because of the excellent leadership provided to the committee by the noble Baroness, Lady Noakes. The noble Baroness’s efficiency is already apparent in her summary today, which has left very little that is new for the rest of us to contribute. I therefore seek simply to underline one or two points made by her.

The work of the committee spoke powerfully of the contribution that your Lordships’ House can make in applying closer scrutiny to a complex and difficult area that is subject to the pressures of social and economic change, the way in which employers seek to employ and the ways in which those who seek employment offer themselves to the labour market.

There has been a substantial growth in the use of personal service companies and umbrella companies for employment. The committee, I believe, has done a first-class job in analysing areas where it was quite clear that from a public policy perspective neither HMT nor HMRC had a clear policy objective. There seemed to be a lack of consistency in the answers that we were given, masked behind a degree of contentment that was ill judged and hardly appropriate in the circumstances as they were revealed by the committee.

The noble Baroness, Lady Noakes, said that she was disappointed that the Exchequer Secretary to the Treasury declined to be interviewed by the committee. I would go further than that. When I served as a Minister in the Treasury, I regarded it as absolutely beyond question that if I were invited to account to Parliament, I should do so. The reasons given by the Exchequer Secretary, Mr Gauke, for not doing so were, quite frankly, not acceptable. The issues that we are looking at were not ones of HMRC implementation; they were a much broader policy issue.

There are prima facie reasons to believe that there is substantial tax leakage at the upper end through personal service companies, while at the lower end of payment there may well be social harm as a result of people forgoing, unknowingly or under duress, some of their employment rights. It was quite frankly unacceptable for the Treasury Minister not to accept either of the invitations from the committee to give evidence—and, moreover, to say that his officials should not give evidence.

Perhaps in that context it is not altogether surprising that we have had a very flimsy response from the Treasury to the work of the Select Committee, one that quite frankly shows a disservice to the hard work that was put in by the members of the committee, our advisers and the clerks. I sincerely hope that when the Minister sums up at the end of this debate, he will be able to give us more substance in his reply than we have received from the Government to date.

It is quite clear to us that IR35 causes many problems. I want to say that it is not working, but it is not entirely clear what it is designed to do. The HMRC officials who gave evidence to us seemed far from clear about how it worked in practice, or were unable to substantiate the figures that they gave us, and they seemed excessively reliant on the IR35 Forum, which seems to be somewhat unbalanced in its constitution, comprising as it does many people who have an interest in the economic activity known as IR35.

I hope that the Minister will go back to the Treasury and say, “We should not be as dismissive as we have been about this report”. Some fundamental and important questions are raised in it about the operation of an area of the labour market that is increasing in its substance and significance. Yet the message that we have from the Treasury is that it really does not want to take this matter seriously at all. I, for one, find it very difficult to understand why the Treasury has adopted that position, so I urge the noble Lord, Lord Newby, to convey to his colleagues in the Treasury that this is a report of substance that raises a number of important questions that deserve close attention from government.

Finally, as a former chairman of the Low Pay Commission, I would like to emphasise the important role that it could play in reviewing the operation of personal service companies and umbrella companies in the employment of the lower paid. There is, again, very strong reason to believe that people are pressurised into accepting employment through one of these arrangements without fully knowing or understanding the implication of their loss of employment rights. Those rights constitute part of a package of reward for work, which is not limited to the hourly rate, although that may be the most important element. Therefore, it falls entirely legitimately within the framework of the Low Pay Commission’s role and within the competence of that commission and its officials.

I very much hope that the Minister in his summing up will give noble Lords a clearer message on whether the Government are going to put this matter in the hands of the Low Pay Commission or whether we have to conclude, regretfully, that HMT just cannot be bothered to get to grips with this issue, regardless of the cost in lost tax revenue or the potential damage to employment rights of the low paid.