Why the IR35 legislation shows that politicians can't see the wood for the trees

Recently, I found myself discussing the contentious nature of the IR35 legislation with members of the Government. These robust...

Recently, I found myself discussing the contentious nature of the IR35 legislation with members of the Government. These robust but friendly conversations encouraged me to draw some conclusions about the argument.

Simon Moores

Tech talk

Politicians are, I believe, suffering from reality vertigo where the advance of the new economy is concerned. Regardless of good intentions or generous investment, there is no possibility that we, or any other European nation, will be capable of producing or attracting a sufficient army of skilled knowledge workers to meet the immediate demands of an expanding information economy.

"In 20 years, we'll have got there," one minister told me, commenting on the problem of the digital divide. But a lost generation could be the difference between being in first and last place for European e-business and government.

IR35 is a symptom of political forces wedded to principles of taxation at the expense of imagination. While more imaginative members of the establishment may recognise the dangers in the politics of envy, the argument itself goes beyond the hazy issue of shadow employees and the contentious tax status of one-person limited companies.

While we are attempting to attract skilled, immigrant knowledge workers to our shores, we seem to be losing sight of the fact that our neighbours may soon be offering generous relocation incentives to the people we already have.

Our convoluted tax legislation is an unwieldy disaster and the establishment's understanding of business appears to be firmly stuck in the moribund manufacturing economy of the 1970s.

Elitism was a dirty word for the social engineers of the 1990s. Chasing a vision of universal mediocracy, they have left us unprepared to meet the challenges of a changing economy. Yesterday's definition of a business may no longer be true of tomorrow's corporation and the steady march towards looser, smaller and highly specialised service companies is an unavoidable fact of life.

Abraham Lincoln once said, "You can't help the poor by destroying the rich."

IR35 represents a legislative arrogance which ignores the realities of a changing global economy. As part of a bigger picture, small entrepreneurs in service companies should be quite selfishly encouraged and incentivised because they represent the seeds of tomorrow's commercial landscape. The virtual network created around these little companies, if managed intelligently, will become a foundation for the networked economy.

But, like other contentious legislation this year, IR35 appears to be driven by a blindly acquisitive Treasury agenda; one with little regard for a process of consultation or potential economic fall-out. This leaves me feeling deeply pessimistic over the future of UK plc.

Simon Moores is chairman of The Research Group

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