PCG 2: Fighting IR35 in Parliament
“This is an example of the Government using a sledgehammer to crack a nut,” the late David Ramsden said of IR35 in a press release announcing the official formation of PCG.
It was just days after Andy White’s crowdfund had raised enough to run a campaign against IR35 and now, with a clear mandate to represent contractors, PCG was readying itself to act on its newfound legitimacy.
White set about building a team to run a bold, confrontational campaign, but with IR35 due to take effect the following April, there was little time to waste.
Ramsden was brought in as director and was tasked with leading the lobbying campaign in Parliament. Alongside Ramsden was Susie Hughes, a former Home Office and Downing Street press officer, whose role it was to ensure PCG and IR35 garnered media coverage. They had worked on a major campaign together before, when they successfully lobbied Government to remove the restrictions on Sunday trading.
Finance director Kevin Miller was tasked with analysing IR35, all the associated figures and their potential ramifications, then feeding his analysis to Ramsden and Hughes to formulate a strategy.
One difficulty, however, was the low profile of IR35. The legislation was not mentioned in the Budget speech, and was only the 35th release by the Treasury. Therefore, outside of contracting circles, very few people had even heard of it. And even fewer cared.
It was crucial, therefore, that PCG could generate early momentum in the media so that MPs were both aware of and sympathetic to their plight.
“It was a very technical, minor tax change which would affect a small number of people and was easily justified – or so the Government thought. What they never expected was that it would be a massive change to the legitimate way a lot of people operated,” Hughes said.
“What we had to do was make sure our audience understood IR35. It was an incredibly complicated issue, so our campaign was very difficult. Nobody knew about it either. It was quite a challenge to educate people, to raise awareness and to make it an issue.
“I think the Government couldn’t believe that something they thought wouldn’t affect many people became such a big issue for them.”
After their election victory in 1997, the Government agreed to publish Regulatory Impact Assessments (RIA) for all tax legislation – and IR35 was no different. PCG also completed an equivalent RIA that contradicted – quite dramatically – the Government’s. It found that up to 66,000 small businesses could be forced to close – although PCG believed this was a significant underestimation.
Within days, the front page of the Daily Telegraph published an article about the potential closure of 66,000 small businesses. The Times quickly responded, publishing a similar story – the first in what became a steadily increasing stream of news.
“It showed that, because of the loss of jobs, people would move abroad,” Hughes added. “These were very mobile, highly-skilled people. It started off as a drip feed, with us starting to educate the business journalists about what it was about.
“The other tool we used was a lot of case studies. There was a story to tell – these people had families, they had mortgages. They created Facebook-type sites, and they did it years before anyone else. They had forums where they could exchange information. If a journalist called me up and asked if I could provide a case study, I could ask the forum and there’d be 2,000 people saying ‘yes, I’ll do it’.
“Jane Akshar was one of these people. She was an IT contractor with a family, bills and a young daughter. She was great with the media and prepared to tell her story. It was a real indication of our passion – we were doing it in a very quick period of time. It’s normal now, but then it was ground-breaking.”
With a media-worthy line on IR35 circulating in the press, PCG needed to consolidate their advantage and did so with a major letter-writing campaign targeting every MP in the country.
“It was a remarkable campaign, with our members writing directly to their MPs, spelling out what it meant to them personally. They were really well argued letters explaining why it was so bad for UK Plc,” White said. “There wasn’t an MP in the country they didn’t get in touch with – and many, many of them on several occasions.”
Many MPs were sympathetic to the cause, though others were far from understanding. Alec Jordan, a PCG member, was able to arrange a meeting with his local MP – Chancellor Gordon Brown. He was none-too-pleased and, though he was prepared to meet and listen, did not believe the issue merited a response.
As disconcerting as his reaction had been, the ongoing letter-writing campaign had been concerted and intense enough to strike a chord with many inside Westminster. The Conservative front bench Treasury spokesman, John Whittingdale, raised IR35 in Parliament for the first time in early May.
“I understand the Government are anxious to close loopholes and crack down on tax avoidance, but I do not regard this as an example of tax abuse,” he said. “The measure is provoking enormous concern, and I am sure that almost every honourable member will have received, or will receive, letters from people in the industry.”
Despite a lengthening and high-profile list of opponents, IR35 was passed in the House of Commons and placed in the Welfare Reform Bill, meaning it would later be debated in the House of Lords.
“The Government’s initial attempt to introduce this proposal via the Welfare Reform Bill without proper consultation was an attempt to legislate through the backdoor,” Ramsden said in a press release at the time. “It also seems incredible that the Government seems willing to endorse the closure of so many small, entrepreneurial businesses.”
Despite that body blow, PCG had a major coup when Lord Weatherill, former Speaker in the House of Commons, pledged his support and became a patron. Ramsden, whose influence was a major factor in securing his support, said: “His Lordship is a highly respected politician of long standing, and his support underlines the serious intent behind our aims.”
His support did much to help raise PCG’s respectability externally, while also internally reassuring members that they were part of a serious and rapidly-evolving campaign.
PCG had long held the opinion that a crackdown on ‘disguised self-employment’ was necessary, but wanted comprehensive consultations to ensure any legislation would not have a detrimental effect on genuine self-employment. Thus far they had only been party to a series of unproductive consultations with Inland Revenue, who were being inundated with overwhelmingly negative feedback on IR35.
It seemed as if the Treasury were getting bored with the discussions, and in another largely meaningless consultation, they told the PCG they had already made their decision and would not be offering the opportunity for comment. The following day, they announced revised proposals, which removed the control and supervision tests that would have determined a contractor’s IR35 status. The plans for agencies to deduct tax and NI at source had also been removed.
Contractors could continue to trade under their limited companies. Though it appeared like a victory on the surface, once the details were examined, it became apparent that, in the words of Philip Ross, IR35 had “gone from being a totally unworkable system, to just a bad one. As far as Andy, David, Susie and I were concerned, the fight went on. We would not dilute our stance that the principle was wrong.”
Four days later, Ross attended the Labour Party Conference intending to do just that: continue the fight. After listening to the Chancellor praise the economy, and various union leaders address the audience, chair Margaret McDonagh announced that there was time for one final speaker.
Having sneaked past security, Ross appealed animatedly from the front row and, to his amazement, was selected. On taking the stage Ross launched into a three-minute tirade about IR35. Behind him, Brown looked furious.
Despite Brown’s position as Chancellor, IR35 had been taken on by Paymaster General Dawn Primarolo, a vehement opponent of PCG, whom the Guardian had labelled a “former hell-raiser with a radical past.” Using the momentum from his speech, Ross was able to arrange a meeting with her the following day. The exchange was heated.
“Primarolo took it incredibly personally,” Hughes recalled. “She called them ‘tax cheats’, ‘glorified secretaries’ and said ‘they were taking the money that should be paid to nurses’.
“Her portrayal was that, rather than operating in a legitimate business structure, they were fiddling the exchequer out of money that should be paid. They were trying to dodge the tax system. But that was never the case: it was just the way their business model had developed.
“They took it on a much more personal level than we did, and it backfired. Their media plan didn’t work very well because instead of arguing the facts, it was arguing the emotion. And she clearly thought they were all Rolex-wearing, Ferrari-driving tax cheats – which in fact they weren’t. They were people with young families who were prepared to take the risk of running their own businesses.”
With the Welfare Reform Bill having passed into the House of Lords, there was an early reading of the new clauses in October. Gareth Williams briefed PCG supporters in the Lords. PCG weren’t expecting much but, remarkably, the House rejected the clause and IR35 was voted out of the Bill by 84 votes to 66.
“The Lords never normally say no to bills, but they actually kicked it back to the Commons! It’s unheard of,” White said. “It never happened before and it’s never happened since. It was all down to the individual members and the immense amount of effort they put in.”
There was a palpable sense of shock that the Bill had been rejected, but now there was a real opportunity to press home the advantage. “Our attention must now swing back to Members of Parliament,” Ramsden wrote. The Commons would again debate the clause and the PCG would be there to lobby Parliament using the lesser-known ‘Green Card’.
“The Green Card Lobby was a rather old-fashioned and quaint right that, if you turned up at Parliament and walked into Central Lobby, you could hand in the card and request an audience with your MP,” Hughes said.
“I put the information up on the website and we called it ‘Contractor Day’, and the idea was that anybody who was around Central London should come along and tell their MP what it was all about.”
Hughes booked two tables in The Red Lion Pub to host the dozen contractors they envisaged would turn up. “I remember walking around the corner that day, and there were people spilling out of the pub,” she added. “There were absolutely hundreds there with the ‘I Support the PCG’ badge. It was probably the first flash mob in the country.”
As PMQs began, an estimated 700 contractors began queuing outside Parliament to lobby their MP’s. “It wasn’t so much a lobby: it was an invasion,” Ross said. The sheer weight of numbers threatened to overwhelm the house as green cards were distributed to MPs by furious authorities.
“On TV you could see boxes of Green Cards being passed along the benches and MPs were coming out. It was really quite interesting. MPs had been thoroughly briefed by their constituents and there was a real sense of opposition to this,” White said.
Unfortunately, the opposition was not great enough, and IR35 was reinstated to the Bill by 345 votes to 203 in front of Hughes, Ramsden and White, who sat on the floor of the House to witness the debate.
“Yesterday we lost a battle, but we discovered a voice,” White wrote. “We chose to take our message into the heart of Government with reasoned and irrefutable evidence. We packed the lobbies and demanded to be heard. We are legitimate businesses who are trying to protect our future and the future of the enterprise economy on which both we and the Government know our future prosperity depends.”
IR35 and the Welfare Reform Bill returned to the Lords and, in keeping with convention that they do not continue to defy the elected chamber in Commons, the issue was not subjected to a second vote and remained in the Bill.
“Congratulations are due to the Professional Contractors Group. I have never encountered such a literate, persuasive series of letters,” Lord McIntosh told the House. “Ministers have received something like 2,000 letters. I myself have received many dozens. They are literate, well spelt, well argued, persuasive letters – and wrong.”
Ultimately, PCG’s attempt to have IR35 thrown out was fruitless, but the changes they had forced were such that, over the ensuing 18 years, IR35 became what White called a “voluntary tax”.
“To a certain extent we probably achieved what we wanted,” Hughes added. “There were opportunities for people to work around it. We succeeded in terms of raising the profile and we got some technical changes that made it easier. We created an industry to help contractors pass these IR35 tests, or insure themselves against it. We unified contractors and there were a lot of pluses. Did we stop it? It was probably never going to be stopped.
“To a certain extent we stopped a solution being found that would have damaged the sector beyond repair. There were things that were floated around at the time that would have killed that sector off completely. We punched above our weight, we were breaking communication ground without realising what we were doing. We probably set new standards for online communication that had never been done before.”
Tom Hayward is IPSE’s Senior Press and PR Officer.Tax, Policy