Masochistic government IT offshoring rules that reduce tax revenue and increase discontent

| 8 Comments
| More

George Osborne would have a tax boost if Coalition was tougher on IT offshorers bringing workers to the UK.

In my job as a business journalists I am constantly hearing the phrase "It's a win, win" but when it comes to offshoring IT it seems a "lose, lose" for the UK government.

There would be hundreds of millions in extra tax for the UK if the government made it easier for UK IT workers to compete with offshore workers who are brought to the UK by suppliers. This is because offshore staff working in the UK, on Intra Company Transfers, pay much less tax as you will see below. This is because the way living expenses, which are not taxed, are bundled into salaries.

Also a result of the UK unemployment resulting from offshoring the government has to pay more out to the thousands of IT professionals that find themselves out of work.

As we have a budget this week I thought I would expand upon last week's blog post about the tax revenues that the UK is losing as a result of the offshoring IT.

A reader has sent a link to a document he has put together about the double whammy of UK workers being undercut by offshore workers and UK tax revenues reducing as a result.  Within the document he created an example of the costs of IT workers both onshore and offshore and reveals the different tax revenues generated (Click on image below to see full size table).

Kellard.jpg 

The document has some very interesting links within it.

This is what the reader had to say: "When the government is announcing cut backs and increases in taxes people will ask why are migrant ICT workers and their companies being given tax advantages at our expense?"

8 Comments

Excellent report, but very depressing to see such clear evidence of just how determined the government must be to ignore all the evidence of the massive damage that has been inflicted on our industry and economy by large scale ICT abuse.

Any chance of you getting an interview with a relevant government minister on this issue, Karl?

Matt

When the Tories were in opposition they were very willing to tell me about their plans to manage ICTs. Now that they are in government and are doing little they will not be too willing to talk. I will try my best.

Karl

Wonder how much of it is down to St Vince of Cable, considering he hasn't exactly been a shining light in his department...

If the government is giving a £250 million a year subsidy to companies to undercut UK workers, then no wonder there are so many intra company transfer visas being used.

The government has ignored their own independent advisors (the MAC) who pointed out that the current rules mean that many intra company transfers are not likely to be making a net fiscal contribution to the UK i.e. it costs the public purse more to have them here than they pay in taxes. So we are paying taxes to subsidize UK workers being put out of work, and then paying even more taxes to pay benefits to the unemployed UK workers.

The Office of Tax Simplification initially considered the national insurance exemption for intra company transfer/posted workers, but dropped it from the final report, and the government does not intend to close this tax relief:
http://www.publications.parliament.uk/pa/ld201011/ldhansrd/text/110322w0001.htm#11032288000658

Their reason is bizarre considering someone coming for only a few days would not be put on the UK payroll and be subject to Class 1 NIC.

Do as Peter suggests and write to your MP.

Why is the government so blind to this abuse?

I can only assume that some of this "blindness" is inspired by "personal incentives".

How can it possibly be fair that a UK IT firm using UK-based resources cannot compete against a foreign firm using foreign resources for work in the UK? It is especailly frustrating that our own government is selling us down the river!

No wonder IT graduates have the highest rate of unemployment. We won't have an IT industry if all the entry-level jobs are taken by ICTs. And then we would have to take foreign resource - we wont have any experienced home-grown talent!

If the goverment were serious about the need to raise taxes ... they should address the tax iniquities to make sure that we are at least competing on a level playing field.

Also, they should take a long hard look at the true economies of offshore outsourcing (because if you use locally-based resource you get half your money back in income tax/ni/corp tax).

F.

@Flash - that is a very good point about offshoring public sector projects. The government gets half the money back in taxes if the work is kept in the UK (unless it is done by onshored ICTs and the IT consultancy "offshores" the profit).

If the work is done in the UK by UK workers who would otherwise be unemployed (like the current 38,000 unemployed UK IT workers), then the saving to the government is even more.

Many governments around the world seem to understand this.

@ArgieBee: "... unless it is done by onshored ICTs and the IT consultancy "offshores" the profit."

Unfortunately, that's exactly what has happened on government projects I've seen, with the government client actively colluding in the sham by meekly waiting while the fat consultancy concerned rotated their ICTs offshore for a few weeks before starting a "fresh" assignment back on the same project. But the consultancy was still charging their government client the same grossly inflated rate for the cheap (and largely useless) ICTs as they charged for experienced UK-based contractors, so the use of ICTs wasn't even saving the taxpayer any money in staff costs.

Govt lose tax/NI revenue by allowing ICTs to work here on preferential terms.

Govt lose more tax/NI revenue because the displaced UK staff are no longer contributing to the coffers.

Govt lose more money by paying the benefits of those displaced from their jobs (including all the graduates that cannot even get their first IT job).

But then there's another effect..those displaced from their IT jobs become economically inactive so they cannot buy the house, furniture, car etc etc that they would otherwise have bought. This percolates through the UK economy and causes reduced activity in other sectors.

So its actually a lose, lose, lose, lose scenario!


Leave a comment

Have you entered our awards yet?

About this Entry

This page contains a single entry by Karl Flinders published on March 22, 2011 6:00 AM.

Did Fujitsu misprice the DWP deal? was the previous entry in this blog.

79% private sector CIOs prefer private sector IT skills is the next entry in this blog.

Find recent content on the main index or look in the archives to find all content.

 

-- Advertisement --