The IR35 legislation could cause a brain drain not seen in the UK since the 1970s, according to William Hague, leader of the Opposition.
He said that small IT companies are deeply worried about the new tax regime, which is forcing them to consider setting up shop away from the United Kingdom.
In a speech at a recent Conservative e-business conference he attacked the Government's plans to implement the IR35 regime. "Far from driving away the very people whose enterprise and innovation can build and drive the knowledge economy, we should be doing everything in our power to make them want to stay."
The IR35 legislation also threatens the share option schemes that many high-tech companies need to attract highly skilled workers. "Changes introduced by this Government which impose national insurance charges on employers offering share options, badly undermines one of the best ways for dot.com companies to retain and motivate their workforce," said Hague.