Are the Conservatives about to change their minds on IR35?

Contractors are understandably weary of politicians’ pledges to review the IR35 rules.

The Conservative government’s stonewall attitude to the legislation was a far cry from its past persona, which took power in 2019 with a promise to review the Intermediaries legislation. They reviewed IR35 almost immediately, though in the end it amounted to little more than an open and shut case lead by Treasury officials.

Now firmly out of power, the Conservatives have entered a period of soul searching that will end with a change of leadership – and potentially a change of tack on IR35, writes Fred Hicks, senior policy adviser at The Association of Independent Professionals and the Self-Employed.

Conservative stubbornness on IR35

It’s still hard to fathom that the Conservative party, which has traditionally promoted free enterprise and the cutting of red tape, went on to champion reforms that embody the polar opposite of this. Reforms to the rules took effect in the public sector on April 6th 2017 and subsequently in the private sector, on April 6th 2021.

We know that HMRC and specifically its recently knighted top taxman sees no issue with the off-payroll working rules. But the buck for OPW, ultimately, stops with the government’s leadership. For the most part, the Tories have been indifferent to the impacts of these 2017/21 reforms; indifferent to the impact on contractors and indifferent to the impact on UK organisations (contractors’ clients).

The biggest barrier to change on IR35 has been the former prime minister, Rishi Sunak. He brought the private sector reforms onto the books as chancellor and was in no mind to undo that work as PM; though we mustn’t forget the contributions of his predecessors, George Osborne and Phillip Hammond, in getting the work started.

But soon, Rishi will return to being one of significantly fewer Tory backbenchers lead by what could be a radically different party leadership.

Some Conservative MPs want change

At the time of writing, we don’t yet know who the Conservatives’ next leader will be, but we do know that many in the parliamentary party were never happy with the off-payroll working rules to begin with.

In 2020, at least 12 Conservative MPs were brave enough to rebel against the government in a vote on an amendment to the Finance Bill which would have seen the private sector reforms put on hold. Many more would have held their nose while voting to avoid the consequences of rebellion, which can be severe (just ask the seven Labour MPs who recently had the whip withdrawn over a vote on the two-child benefit cap).

And more recently, we saw a Tory critic of the reforms propelled to the very top of government in the form of Liz Truss, having voiced her concerns about IR35 in her leadership bid.

Ultimately, we all know how that went. My real point here is to highlight that Rishi Sunak’s view on IR35 is not shared by all his colleagues -- and could now be minority view in the party.

Other parties and IR35

But the pressure to adopt a new stance on IR35 will be as much about political tactics as it is about ideology or beliefs.

Both the Liberal Democrats and Reform UKs, which took critical stances on IR35 in their 2024 election manifestos, enjoyed relative success at July’s election. Together, those two parties account for 77 voices in the House of Commons, all of whom are set to outflank the official opposition party on an issue that should be bread and butter for a centre-right, economically liberal Tory party.

My prediction is that Conservative MPs will find this difficult to tolerate and, as the ‘official’ opposition, will be reluctant to let rival parties take even more of the plaudits in the fight against IR35.

The perfect time to reconsider

This brings me nicely to my final and most obvious point – the Conservatives should take a stand against IR35 precisely because it would be in opposition to the government of the day.

The Conservatives will want to draw clear new battle lines as they set themselves up to challenge a Labour government. It might seem like rank hypocrisy to immediately oppose a policy they brought in when in government, but to avoid doing it for this reason would be a mistake. The reforms have been hugely damaging for key sectors of the UK economy that rely on contractors; if the best time for the Conservatives to realise this was yesterday, the next best time is today.

Final thought

Much like Sir Kier Starmer’s pride in his ‘changed Labour party’, a new Tory leader can and should want to shake off the legacy of the last government and return to properly backing small businesses and the self-employed. That work can start with an unequivocal commitment to campaign for a complete overhaul of IR35 in opposition, and scrapping it altogether in government.