Finance Bill

I want to introduce amendment No. 14, which stands in my name and that of my hon. Friend the Member for Falmouth and Camborne (Julia Goldsworthy), and to support amendment No. 1, which tries to achieve the same thing in a somewhat different way. The hon. Member for Chipping Barnet (Mrs. Villiers) has talked in some detail about the technical and legal issues, and I do not want to duplicate that. The value that I can add relates primarily to being a gnarled veteran of the IR35 debate in the 1997 to 2001 Parliament, when we went through these arguments in Committee and on the Floor of the House. Clause 25 is in many ways a successor to that. In her introduction, the hon. Lady raised many fundamentally important questions, including whether IR35 has failed, whether clause 25 is a substitute for it or a complement to it, and how the two things interact. Having been involved in the IR35 debate, it was clear to me that we are in inherently difficult territory. We are dealing with an economy with a great deal of ambiguity; with the fuzzy borderline between employment and self-employment. That presents fundamental problems for any Government when it comes to avoidance, because there is quite a big margin of difference between the marginal tax rates paid by the employed and the self-employed through national insurance. A lot is at stake. At the same time, we have an economy where some people are not easily pigeonholed as in employment and in self-employment. The hon. Lady mentioned one of the most important groups—the IT industry. That industry, which will be primarily affected by the clause, is important not only for the economy in general but for Government finance and contracts, and for delivering IT contracts on time. The clause seriously affects the oil industry; large numbers of people in the offshore oil industry work with such a contractual relationship. It also affects the national health service. The biggest group of contractors who will be affected by the clause are temporary workers within the NHS. The ability to maintain the supply of those services when there is a shortage of NHS staff hinges critically on a sensitive tax treatment. So I revert to the question that the hon. Lady posed of whether IR35 has failed. She asked whether the Government could tell us how many people were brought within the standard tax-paying employment bracket through IR35, how much revenue it generated and how many people fell outside it as a result of the growth of management service companies. I do not have much of a feel for the quantitative background to the provision—perhaps the Financial Secretary can provide it for us. Clause 25 introduces a fundamentally new concept, which I want to understand a little better. When IR35 was introduced, the key distinction between the employed and the self-employed was provided through a control test—an attempt to ascertain whether the management of the company that hired the contractor had effective control or whether the self-employed were in control of their work. Control is a difficult concept in taxation, but at least everyone was working with it. We now have a new idea of ““being involved with”” as opposed to ““control””. An MSC provider is involved with a company if it"““benefits financially on an ongoing basis from the provision of the services of the individual…influences or controls the provision of those services…influences or controls the way in which payments to the individual (or associates of the individual) are made…influences or controls the company’s finances or any of its activities, or…gives or promotes an undertaking to make good any tax loss.””" The clause and schedule 3 therefore introduce the idea of ““influence”” as opposed to ““control””. What is the distinction between those two important words? If somebody is regarded as self-employed under the IR35 definition but employed under the MSC definition, what happens? What happens if the definitions clash? How will the ambiguity be resolved?