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Lord Higgins: My Lords, if the noble Lord will allow me to intervene, that is the essence of the group's complaint. It will be told the position; it will be made as clear as possible. The group's complaint about the consultation is that it has not had a reasonable

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audience on the arguments for changing the Government's proposals. What the Minister has just said brings out that fact: that the Government will tell the group, but they will not listen to it.

Lord McIntosh of Haringey: My Lords, when this charge was made at the last stage in this House, I said that the Professional Contractors Group had been present at the seminar which the noble Lord attended and that when I asked it about the consultation, it said they were satisfied with it and that it understood that the Government intended to pursue the basic thrust of the proposal. After all, if we are talking about something over £200 million in tax avoidance, it is the responsibility of the Government to pursue a proposal of that kind. I was astonished when the noble Lord, Lord Higgins, said that he accepted only one or two out of 18 or 20 tax avoidance measures put forward by the Revenue. Ministers in the Treasury are supposed to be on the side of taxpayers, not on the side of tax avoidance. I found that a very curious set of priorities.

Lord Higgins: My Lords, I accept what the noble Lord, Lord McIntosh, said about the meeting which he was kind enough to arrange for the noble Lord, Lord Goodhart, myself, and others who attended. Nonetheless, there is a widespread feeling among people who do not feel that the Government are listening to all the arguments. Can I put one argument? Is it the case under the present arrangements proposed by the Government that if the personal service company invests more in equipment which, together with its other costs, exceeds the 5 per cent limit the Government have imposed, it will find that it is at a disadvantage compared with a large company because it will be taxed on the amount over 5 per cent and the large company will have no such inhibition?

Lord McIntosh of Haringey: My Lords, I think that objection is based on the misconception which has been prevalent in this debate that somehow these one person service companies are entrepreneurs and that they are making some specific contribution other than the skill of the person. We are talking about one-person companies. We are talking about people who choose to form themselves into a company rather than being self-employed without incorporation, which is what most other people in the same position do. Why are they doing that? I do not say that every single one of them is doing it for the purpose of tax avoidance, but I think it has been generally accepted that that is a very substantial reason. We, as guardians of the public purse, have the responsibility of ensuring that that tax avoidance element of the formation of service companies is not allowed to continue.

I hope that the noble Lord, Lord Goodhart, will not feel it necessary to press his rather modest amendment to this very important change.

Lord Goodhart: My Lords, I am most grateful to the Minister for his reply. I would particularly single out the question of the risk with which I do not think he

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dealt adequately. The risk arises particularly in borderline cases. First of all, the noble Lord did not accept what seems to me patently and obviously true. That is that the risk of an adverse decision, so far as employers' NICs are concerned, should rest with the real employer and not with the nominal employer. It is the bigger organisation and not the one person company who is clearly in a better position to bear that risk. It can be spread over a much larger number of cases. For the individual concerned in the one person personal service company, it may be catastrophic, as pointed out in the letter that the noble Lord, Lord Jenkin, read to us. It must undoubtedly be an issue for many people in that position.

Equally, the reason why employers or clients will insist on dealing only with service companies is again simply the risk. By dealing with the service company, they know they are at no risk at all if Clauses 70 and 71 are brought back in the form that the Government want them as the risk is bound to lie on the worker and not on the employer. Whatever the noble Lord, Lord McIntosh, may have done in the past, I am sure he was an exceptionally good employer and would not have allowed that sort of issue to disturb him.

Lord McIntosh of Haringey: My Lords, not just my company is doing it now. All market research companies are doing it now.

Lord Goodhart: My Lords, the question is how much longer they will continue to do so if the personal service company becomes something which is clearly seen as a protection for them against the risk in borderline cases.

The Minister will no doubt be relieved to hear that I do not intend to divide on the Motion. There are three reasons. First, we have probably had enough Divisions today. Secondly, broadly speaking, we agree with the Governments' objectives but feel that the proposal has not been adequately thought out and that it needs more care. Thirdly, there will be opportunity for further consideration in the next six months or so because, as we know, there will be legislation in the next Finance Bill to deal with the tax aspects of a personal service company and Clauses 70 and 71 can then, as a result of subsection (9) in each clause, be revised in the light of the relevant decisions taken in that Bill. However, I hope very much that the Government will take the opportunity of reconsidering something that I believe is aimed in the right direction but which is a deeply flawed solution. I beg leave to withdraw my Motion.

Motion, by leave, withdrawn.

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")

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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)").
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--

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(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 McIntosh of Haringey: My Lords, I beg to move that the House do not insist on their Amendment No. 53 to which the Commons have disagreed and do agree with the Commons in their Amendments Nos. 53A to 53V to the words so restored to the Bill.

Moved, that the House do not insist on their Amendment No. 53 to which the Commons have disagreed and do agree with the Commons in their Amendment Nos. 53A to 53V to the words so restored to the Bill.--(Lord McIntosh of Haringey.)

On Question, Motion agreed to.

[Motion No. 54W not moved.]


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