Jesse Norman denies April’s IR35 off-payroll rules exerting ‘chilling effect’

Jesse Norman has denied that private sector IR35 reform is having “a chilling effect” on the flexible labour market, despite being told that IT contractors are losing their contracts over it.

The Treasury minister preferred to characterise the contract losses as a ‘nudge’ that “some companies” are “undoubtedly” giving to workers who they suspect are disguised employees.

“[Companies] in some cases are having to review the structure of their workforces,” Mr Norman said, speaking to MPs ahead of a vote which backed the reform’s April 2021 launch.

“But I don’t think that is a matter of a chilling effect on the status of those contracts themselves, because those people were always latently employed.”

'Nudging'

The minister’s reasoning overlooks the many firms who rather than test for IR35 status, have ended all PSC usage to head off any liability, which the reform ascribes to them as end-users.

Paradoxically though, Mr Norman suggested in the very same House of Commons appearance that no such “nudging” was actually going on right now.

“[The government’s decision to delay private sector IR35 reform] ensures that businesses and contractors will not have to implement and adjust to the reform until next year,” he said.

'All should be preparing now'

The contractor industry’s top IR35 experts, some of whom the Treasury itself has seconded to advise on the rule, say the minister’s assertion is totally at odds with best-practice.

“All should be preparing now,” says Kate Cottrell, a former adviser to the OTS. “[Because] when it does come into force, there will be the same chaos as we saw in the public sector.”  

Again, Mr Norman sees things differently. In rejecting that the reform is having a chilling effect in the private sector, the minister also said it had no such effect in the public sector.

“This reform is effective…it raised an estimated £250million in additional revenue in the first 12 months”, said the minister, describing the April 2017 implementation as “successful.”.

“[And we have] independent research showing it did not damage the flexibility of the labour market.”

'Did not detect any great, chilling effect'

Pressed by the SNP’s Alison Thewliss, who said IT contractors in her Glasgow constituency were already losing their contracts and being made jobless, Mr Norman added:

“As I’ve said, in relation to the public sector reform, the external research did not detect any great, chilling effect.”

Last night, one ContractorUK reader suggested that the minister ought to have been paying closer attention to events ‘on the ground’ when the April 2017 framework hit.

“I was at the Home Office when IR35 reform was introduced in the public sector three years ago and witnessed the carnage first-hand,” he said. “I’m not looking forward to another round.”

'Not listening to the House of Lords'

Criticism of the government for not convincingly learning the lessons from the public sector rollout of IR35 reform was made in April by the House of Lords Economic Affairs Committee.

 “The minister said during his opening remarks that he listened carefully. That the government listened carefully,” began the SNP’s Stephen Flynn, speaking to Mr Norman on Thursday.

“Well, who they’ve not listened closely to is, of course, the House of Lords.

“And the House of Lords have been clear. That they [the government], need to pause this policy and go back to the drawing board. I would urge them to do just that.”

'Respond to peers in due course'

But the SNP’s Treasury spokesman heard he is “entirely wrong” about the Lords Committee. Admonishing him, but offering some interesting clarifications to others, Mr Norman said:  

“We are yet to respond to the Lords Committee. And we will do so in due course,” said the minister, at odds with the consensus that government has all but replied to the Lords already.

“I approached Lord Forsyth personally having just become Financial Secretary to the Treasury…and I went and indeed volunteered to appear in front of [the committee].”

Despite Mr Norman making no mention of the committee’s damning findings about IR35, HMRC and HMT, it is the Lords who secured the delay of the reform, citing covid-19.

'Abandoned'

Writing today exclusively for ContractorUK, IR35 advisory Bauer & Cottrell says further fallout from coronavirus is the only tangible hope of the April 2021 date being delayed again.

The former Home Office IT contractor reflected: “[Limited company workers] have been abandoned by the government during covid-19. 

“Surely this has to be factored-in to the argument against a 2021 implementation? Covid has demonstrated the need for contractors to have a ‘rainy day’ fund to handle all eventualities.”

Fortunately for all who want a delay, the Finance Bill which contains the 2021 measures is now approaching a “chance for the whole House of Commons to discuss and amend it”.

'Unwise to expect a U-turn'

Stop IR35 campaigner Kirti Shukla also said: “Report stage [is] in June 26th  onwards.[It ] gives MPs an opportunity…to consider further amendments – proposals for change.”

But Seb Maley, chief executive of IR35 status reviewers Qdos, believes a significant change of heart from the government looks unlikely.

“While some MPs clearly have concerns about the reform - and rightly so - it would be unwise to work off the basis that there will be a U-turn at the report stage,” he says.

“Therefore, we have urged private sector firms to carry on preparing - the more time these businesses give themselves, the better - and the better for contractors.”

'The sooner, the better'

And some MPs may now believe that the die has been cast, just like some contractors do.

A limited company SAP provider posted: “The sooner the Treasury and government decide on which way they are going, the better.

“The continual indecision on this is more damaging than IR35 itself. We are prepared for both outcomes, we urge businesses to do the same.”

'Act well in advance of April 2021'

At Qdos, which runs IR35 contract reviews, Mr Maley says he’s now seeing the majority of contractors’ partners gear up, despite the ‘will they; won’t they’ initially causing indecision.

“Some companies initially paused preparations following the 12-month delay to the reform, but we’re now starting to notice that recruiters and end-clients are ramping up their activities

“In recent weeks, as businesses reopen their doors [from coronavirus lockdown], preparing for reform is clearly a priority.

“[And despite the bill’s ‘report stage’] companies impacted by IR35 reform [must] continue their preparations and ensure they are in a position to make accurate IR35 decisions well in advance of the implementation date. Firms yet to consider IR35, need to, immediately.”

'Test your brain-drain claim'

His recommendation to act and implement IR35 reform-ready procedures now undermines Mr Norman’s assertion that businesses need not make adjustments until next year.

Elsewhere, the minister recommitted to the government conducting post-implementation research into the private sector IR35 reforms.

He said such research would “test” the “claim” of Ms Thewliss -- that skilled IT contractors who have chosen to come to the UK from India, among other countries, will simply take their skills and money “somewhere else” to avoid the reform.

“What are you doing to mitigate against this?” the concerned SNP spokeswoman asked the minister.

“This is a claim that she makes and this a claim we will be able to test, over time, by, through external research,” Mr Norman said, before swiping at her:

“It’s not a view that’s been validated so far in the rollout to the public sector. And it’s a very diverse and vibrant area of our life. And it may well have more resilience, overall, than she is giving it credit for.”  

'Treating their saviours like villians'

Someone from that area of life, the ContractorUK reader with Home Office contracts under his belt, warned the minister against making an experiment out of people’s livelihoods.

“If they insist on bringing this in next year, people like me are seriously considering leaving our industry altogether,” he says. “It's just not worth having worked 20 years, gaining a PhD, an MSc, a BSc and an enviable portfolio, just to have my value removed by a clueless government which despite the pandemic, treat their economic saviours like villains.”