The Blog

Stop Fighting Mythical Dragons George and Let Small Businesses Roar

In the run up to yesterday's budget I called on the Chancellor to come out fighting for the UK's smallest businesses, a sector that contributes £82 billion to the UK economy annually - freelancing. As the dust settles on the Budget, how well did the Chancellor do?

In the run up to yesterday's budget I called on the Chancellor to come out fighting for the UK's smallest businesses, a sector that contributes £82 billion to the UK economy annually - freelancing. As the dust settles on the Budget, how well did the Chancellor do?

Whilst welcoming the rise in the personal allowance, the Budget contained little to significantly help the UK's 1.6 million freelance businesses. Specifically, the government did not further clarify IR35 and a new consultation raises deep concerns over the future of interims and some freelancers operating within the public and private sectors.

Going back to IR35, the Red Book states, "The government will introduce a package of measures to tackle avoidance through the use of personal service companies and to make the IR35 legislation easier to understand for those who are genuinely in business." What exactly does the government mean by this, after all the detail is crucial for freelance businesses? Having worked hard on the IR35 Forum in the last year debating how current legislation could be targeted to give clarity for one person businesses and at the same time stop disguised employment I had been hoping there would be more of an update in the Budget than this rather generic statement.

One significant announcement contained within the Budget, on which I am seeking urgent clarification, was the Chancellor's plans to require those engaged as "office holders/controlling persons" who are "integral to the running of an organisation" to become PAYE. These plans appear ambiguous and may affect senior interims. It is crucial that these legitimate businesses do not suffer as a consequence, and surely we are looking to simplify the tax system so this consultation must sit within the IR35 debate, not supplement it.

Ours is a sector still reeling from the recent press coverage surrounding the exposure of Ed Lester, the head of the Student Loans Company who it is claimed was granted special concessions to hold his role through his limited company by HMRC. This mobilised the media and some politicians to launch a campaign focussing their attention on one person limited companies operating within the public sector. The received assumption in much of their rhetoric is that such people are "tax dodgers" which is of course fundamentally inaccurate.

I am in no way defending Ed Lester's employment arrangements; this may well have been a case of false self-employment. Disguised employment should be investigated and stopped but legitimate contractors should be allowed to carry on and not be penalised when they are contributing to the economy, providing value for money for the taxpayer, and providing a necessary skill or service to the public sector.

In response, the Chief Secretary to the Treasury, Danny Alexander MP has launched a review into all those engaged in the public sector through what he calls 'personal service companies'. This is said to extend to over 4,000 contracts and could cover a range of sectors from IT to nursing. We are already seeing evidence of contracts being terminated, where the use of a contractor has been perfectly legitimate, as some in the public sector seek to pre-empt the findings of this review.

We now know that a further consultation, at the behest of the Chancellor, will be launched in the summer. My colleagues and I will be working hard to ensure that interims, consultants, and contractors are represented in this process.

If George Osborne or Danny Alexander seek to restrict the use of freelancers in the public sector, they would be doing so in the face of strong public support for the sector. A recent ComRes survey showed that 79% of the public believe that the government should make it easier for companies to adopt a flexible workforce approach. Criticising the use of contractors and consultants in the public sector undermines this flexibility. More importantly, a significant number of freelancers will likely withdraw their services altogether, thus denying the public sector the benefit of their skills and the value for taxpayers' money that they bring.

Overall, I believe that the Budget failed to directly address the needs of freelancers; in fact it leaves me questioning the government's commitment to flexible working. With consultations, reviews, and amends to IR35 imminent this Budget has confirmed our expectation that the next few weeks and months will be crucial for the future of all freelance businesses.

I urge Danny Alexander and George Osborne to set aside the media hype and instead focus on supporting a growing sector that contributes significantly to the economy. If they fail to do this and allow themselves to be swayed by a few high profile media stories then they risk creating anti-business public sector that would cost jobs and growth in SME's and freelancing at this crucial time.