IR35 reform: 'Unprecedented' to pass a law while fearing it was likely defective

The government has admitted to achieving an unenviable first with 2021’s IR35 off-payroll rules – of making legislation to enact rules despite fearing the legislation was likely defective.

In a session of the House of Lords Finance Bill Sub-Committee, Lord Butler asked if the government had ever before tabled a statutory instrument which it knew was technically lax.

Jesse Norman replied: “I am certainly not aware of any situation in which...[an acknowledged error] about legislation has come to light during the process of the passage of legislation.”

The financial secretary to the Treasury added: “This is the only occasion which I am aware of, and certainly in recent memory, in which this has happened during the process.”

'Misalignment'

Mr Norman’s admission comes after he issued a statement saying officials needed to make a technical change to the IR35 legislation to “correct…the definition of an intermediary.”

But in-person, the minister was less plain-speaking and rejected the word “defect” to peers who put it to him, instead preferring the phrase “misalignment of legislative intent.”

He dismissed the idea that firms are preparing on the legislative definition of intermediary, saying his statement on the “problem,” or “issue” -- as he reworded himself, headed off such preparations.

'Inappropriate'

Yet it would be “inappropriate” for him to “guarantee” that businesses like umbrella companies would not be adversely affected, and he declined to say (when asked), that they were not at “material risk.”

“To some extent, we’re breaking new ground,” Mr Norman then braved, referring to tabling legislation which was feared partly faulty or, as he preferred, which the government was “concerned that an aspect of...would not do what we wanted it to do.”

Pulled up by an irritated Lord Bridges of Headley who said ‘breaking new ground’ sounded like the minister believes he is achieving something worth repeating (the peer said “maybe you’d like to think about your choice of words”), Mr Norman was then forced to clarify.

'No appetite for a rerun'

“No one has any appetite for this episode to be repeated,” the Treasury minister said, alluding to the committee’s inquiry brief, "Why parliament has been asked to pass a law, Statutory Instrument 2020/1220, with an acknowledged error in it."

He also said: “There’s no suggestion that we’re setting any precedent here. There’s no policy aspect of this in which any official or minister would wish us to be in the position we’re in at the moment. I profoundly hope that we and no future government is in this position.”

'Unacceptable'

Mr Norman’s forced clarification came after Lord Bridges almost bellowed to him over Zoom (see approx. 0:49:47 of the hearing): “This is fundamental to why we’re all gathering here today. We are very, very concerned that this is starting to set a dangerous precedent.

“And by [you] saying it’s ‘breaking new ground’ [it just] really confirms to me and raises an enormous red flag in my mind that in some way, this is an acceptable way to proceed.

“This is totally unacceptable,” the peer emphasised, “in the minds of myself and the members of our committee. This level of how you are operating…the government as a whole, and HMRC, is unacceptable.”