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Tuesday, October 19, 1999 Published at 07:43 GMT 08:43 UK

UK Politics

Opinion: Labour's 'stealth tax on IT workers'

In the second in a series of articles by politicians on e-commerce, shadow chancellor Francis Maude argues the government's crackdown on tax avoidance will force IT workers to flee Britain.

E-commerce minister Patricia Hewitt will answer concerns raised by BBC News Online users in the near future - click here to send your question.

If there is one characteristic that has summed up Labour's economic policy, it has been their tendency to introduce extra taxes by stealth.

Higher petrol and diesel duty, the scrapping of married couples allowance and mortgage tax relief and the £5bn a year raid on pension funds all mean that under Labour people are paying more tax.

[ image: IR35 changes the tax rules for many IT workers]
IR35 changes the tax rules for many IT workers
Now, under cover of being seen to clamp down on "tax avoidance", Labour have proposed a new tax on the self-employed.

The government are claiming that many self-employed people are really "disguised employees".

They plan to force independent contractors - such as IT consultants - to pay National Insurance and PAYE tax on their whole income from a client, even if they choose to reinvest it in their company rather than pay it all to themselves as salary.

Following sustained criticism from professional groups and the Conservative Party, the government agreed to "consult" on this new tax.

The consultation was dismissed as a "sham" by the Professional Contractors Group, who say that "Gordon Brown and Dawn Primarolo have repeatedly ignored the people who will be affected by this."

The changes ministers made were mere window dressing. Even after the consultation, the government expected to raise just as much from the tax as they did before - over half a billion pounds. No wonder the House of Lords voted against the tax last week.

The people who will be hardest hit by this tax are precisely the people who the government say they want to encourage - entrepreneurs who are prepared to take risks to capitalise on their skills, which are often at the cutting edge of technology.

[ image: Dawn Primarolo is accused of failing to consult]
Dawn Primarolo is accused of failing to consult
But when Labour say one thing on business, they do another.

As Andy White of the Professional Contractors' Group has pointed out: "The consequences of their actions will be to kill the enterprise culture and the fine words about promoting enterprise and appointments of an e-czar and an e-minister are not going to change that."

These people are some of Britain's brightest individuals. Their key assets are in their heads. They are highly mobile.

In order to move overseas, they don't have to close down a factory and open a new one.

If they don't like the taxes and regulations in one country, they can quite simply hop on a plane and go somewhere else. And they will.

A survey by recruitment consultants DPP International, published in August, found that 51% of IT contractors would leave the country if the government's proposals became law.

[ image: IT workers are reported to be leaving Britain]
IT workers are reported to be leaving Britain
And Susie Hughes from the Professional Contractors Group has said that the tax is already destroying Britain's IT industry. She reports that she is attending leaving parties every week as IT specialists flock to the Netherlands, where they are exempt from tax on 35% of their income.

Even the Labour-dominated DTI select committee has said that Labour's policies on small business constitute "loosely connected and apparently uncoordinated policy initiatives shooting off in all directions, generating noise and interest, but not commensurate light".

Conservatives would support a genuine attempt to clamp down on tax avoidance. But we cannot support a government which uses this as an excuse to tax some of our brightest people, many of whom will be forced overseas as a result.

Labour's manifesto said: "Taxation is not neutral in the way it raises revenue. How and what governments tax send clear signals about the economic activities they believe should be encouraged or discouraged...."

By their own standard of assessment, then, this government is acting to discourage self-starting entrepreneurs and those Britons who would like to see our country lead the world in the knowledge-based industries of the new economy.

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