Previous Section Back to Table of Contents Lords Hansard Home Page



(a) do not insist on their Amendment No. 43 to which the Commons have disagreed,
(b) do agree with the Commons in their Amendments Nos. 43B and 43C to the words so restored to the Bill, and
(c) do agree with the Commons in their Amendment Nos. 43A to the words so restored to the Bill with the following amendments--
43ELine 12, leave out ("50 per cent.") and insert ("the standard rate percentage of income tax")
43FLine 15, leave out ("£85") and insert ("the level of the Disability Income Guarantee")

6.42 p.m.

The noble Lord said: My Lords, I beg to move.

Moved, That this House do not insist on their Amendment No. 43 to which the Commons have disagreed, do agree with the Commons in their Amendments Nos. 43B and 43C to the words so restored to the Bill, and do agree with the Commons in their Amendment No. 43A to the words so restored to the Bill with the proposed amendments.--(Lord Ashley of Stoke.)

On Question, Motion agreed to.

LORDS AMENDMENT

46Clause 60, leave out Clause 60.
The Commons disagreed to this amendment for the following reason--
46ABecause it would alter the financial arrangements made by the Commons, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.

Baroness Hollis of Heigham: My Lords, I beg to move that the House do not insist on their Amendment No. 46 to which the Commons have disagreed for their reason numbered 46A.

8 Nov 1999 : Column 1215

Moved, That the House do not insist on their Amendment No. 46 to which the Commons have disagreed for their reason numbered 46A.--(Baroness Hollis of Heigham.)

Lord Higgins: My Lords, we debated this matter at considerable length at earlier stages of the Bill. We certainly remain of the view that the arguments that we put forward then are justified. None the less, I think it is right that the Commons should concentrate on the two Motions which we have just passed. Therefore, I do not wish to oppose what the noble Baroness has just said.

On Question, Motion agreed to.

LORDS AMENDMENT

53Clause 70, leave out Clause 70.
The Commons disagreed to this amendment but proposed the following amendments to the words so restored to the Bill--
53APage 74, line 36, leave out ("in any specified circumstances")
53BPage 74, line 40, leave out ("and")
53CPage 74, line 42, leave out ("a contract between the client and a third party,") and insert ("arrangements involving a third person (and not referable to any contract between the client and the worker),")
53DPage 74, line 43, at end insert ("and
(c) the circumstances are such that, were the services to be performed by the worker under a contract between him and the client, he would be regarded for the purposes of the applicable provisions of this Act as employed in employed earner's employment by the client,").
53EPage 75, line 1, leave out ("the purposes of the applicable provisions of this Act") and insert ("those purposes")
53FPage 75, line 3, leave out from ("his") to end of line 4.
53GPage 75, leave out lines 5 to 9 and insert--
("(2) For the purposes of this section--
(a) "the intermediary" means--
(i) where the third person mentioned in subsection (1)(b) above has such a contractual or other relationship with the worker as may be specified, that third person, or
(ii) where that third person does not have such a relationship with the worker, any other person who has both such a relationship with the worker and such a direct or indirect contractual or other relationship with the third person as may be specified; and
(b) a person may be the intermediary despite being--
(i) a person with whom the worker holds any office or employment, or
(ii) a body corporate, unincorporated body or partnership of which the worker is a member;
and subsection (1) above applies whether or not the client is a person with whom the worker holds any office or employment.").
53HPage 75, line 14, leave out ("relevant payments or benefits,") and insert ("the specified amount of relevant payments or benefits (the worker's "attributable earnings"),").
53JPage 75, line 15, leave out ("client") and insert ("intermediary").
53KPage 75, line 16, leave out ("client") and insert ("intermediary (whether or not he fulfils the conditions prescribed under section 1(6)(a) above for secondary contributors)")

8 Nov 1999 : Column 1216


53LPage 75, line 17, leave out from ("of") to end of line 19 and insert ("the worker's attributable earnings;").
53MPage 75, line 23, leave out from ("of") to ("period") in line 25 and insert ("the worker's attributable earnings for any specified").
53NPage 75, line 26, at end insert--
("( ) for aggregating any such amount, for purposes relating to contributions, with other earnings of the worker during any such period;
( ) for determining the date by which contributions payable in respect of the worker's attributable earnings are to be paid and accounted for;").
53PPage 75, line 37, leave out ("third party") and insert ("intermediary").
53QPage 75, line 44, at end insert ("persons, whether-- (i)")
53RPage 75, line 47, after ("1988)") insert (", or
(ii) persons of any other specified description,").
53SPage 76, line 7, at end insert--
("( ) Regulations made in pursuance of subsection (3)(c) above may, in particular, make provision--
(a) for the making of a deduction of a specified amount in respect of general expenses of the intermediary as well as deductions in respect of particular expenses incurred by him;
(b) for securing reductions in the amount of the worker's attributable earnings on account of--
(i) any secondary Class 1 contributions already paid by the intermediary in respect of actual earnings of the worker, and
(ii) any such contributions that will be payable by him in respect of the worker's attributable earnings.").
53TPage 76, leave out lines 13 to 23.
53UPage 76, line 35, leave out ("third party") and insert ("intermediary").
53VPage 76, leave out lines 40 to 44.

Lord Goodhart rose to move, That this House--


(a) do not insist on their Amendment No. 53 to which the Commons have disagreed,
(b) do agree with the Commons in their Amendments Nos. 53A to 53H and 53L to 53V to the words so restored to the Bill, but
(c) do disagree with the Commons in their Amendments Nos. 53J and 53K to the words so restored to the Bill.

The noble Lord said: My Lords, these amendments deal with what were originally Clauses 70 and 71 of the Bill that came to your Lordships' House from the Commons. Those clauses caused a great deal of controversy in both Houses and indeed outside Parliament. The clauses are an attempt to block the use of single person personal service companies for tax avoidance. When I say "tax avoidance", I use that phrase for convenience though it is not really very accurate. The real concern is not with income tax but with national insurance contributions. In fact, the scope for avoiding income tax by the use of a personal service company is quite small. By contrast, the scope for avoiding national insurance contributions is enormous. That applies both to employers' and to employees' national insurance contributions.

An organisation called the Professional Contractors Group has run an energetic and effective lobbying campaign on behalf of its members, who are mostly IT experts working through their own personal service

8 Nov 1999 : Column 1217

companies. Like most lobby campaigns, some of the Professional Contractors Group's claims need to be taken with a certain pinch of salt. There is no doubt that tax avoidance is a much greater element in the formation of personal service companies than the Professional Contractors Group concedes. Indeed, that problem will become worse if the rules are not changed. I am not convinced by the claim that most IT workers will "up sticks" and move themselves and their businesses abroad. But the campaign has also made some strong points, to which I shall come in a moment.

The Government's original proposals in the Bill as it emerged from the other place were strongly criticised by a number of senior professional bodies such as the Institute of Chartered Accountants and the Chartered Institute of Taxation. The Government accepted those criticisms--at any rate, to some extent--and came back at Report stage in your Lordships' House with a number of useful revisions. Unfortunately, those revisions were deeply flawed. In particular, it is wrong that, as those revisions provided, liability for employers' NICs should be imposed on the nominal employer--the personal service company--rather than on the real employer. That is wrong for two main reasons.

First, it is grossly unfair on a worker who uses a personal service company, especially in borderline cases where it is uncertain whether the worker's job will be classified as that of an employee or as an independent contractor. It puts on the employee the entire risk of an adverse ruling on the status. Secondly, what is plainly now going to happen is that the clients will insist on contracting only with workers who can use their own personal service companies as an intermediary. The clients will refuse to contract with the workers directly. That, I believe, is entirely contrary to the public interest.

That is why we accept most of the government amendments to the clause, but object to the two key amendments, Amendments Nos. 53J and 53K, which would impose liability to pay the secondary NICs--the employer's national insurance contributions--on the personal service company. If those amendments are deleted, the liability will return to where it should rest; namely, on the client.

But that is only part of the problem. The Government need to rethink these matters at a more fundamental level, and at two issues in particular. First, they must look carefully at the whole NIC system, because of the enormous preference that it gives to self-employment over employment. Self-employed people now receive almost the same benefits as employees. But the NIC contributions paid in respect of the self-employed are very much lower--in particular, because there is no equivalent of the employer's contribution. I have seen figures suggesting that the NIC subsidy by employees to the self-employed may be as great at £2½ billion a year.

Secondly, the Government need to examine carefully the classification of people as either employed or self-employed. That is where the

8 Nov 1999 : Column 1218

Professional Contractors Group has its strongest point. People with very high skills who enter into a short-term contract to perform a specific job and then expect to move on to another job with another client, seem to be more clearly self-employed than employed. Such people do not receive, and do not expect, rights under employment law: holiday pay, membership of occupational pension schemes and the other benefits that go with employment. But under the existing tests they may be employees for tax purposes even if they are not employees for the purposes of employment law.

We need to re-examine the whole question of classification so that the test for the classification as employed or self-employed can take into account not merely the specific job being done but the whole pattern of work that a particular worker goes in for. That is why we believe that Clauses 70 and 71 present serious and unsolved problems. We believe that the Government should take those matters away, reconsider them and return with solutions at a later date. I beg to move.

Moved, That this House do not insist on their Amendment 53 to which the Commons have disagreed, do agree with the Commons in their Amendments Nos. 53A to 53H and 53L to 53V to the words so restored to the Bill, but do disagree with the Commons in their Amendments 53J and 53K to the words so restored to the Bill.--(Lord Goodhart.)


Next Section Back to Table of Contents Lords Hansard Home Page