Monday, 2 July 2012

IR35? An unsympathetic Government? Tests that might not work? 2012? No 1999

IR35? An unsympathetic Government? Tests that might not work? 2012? No 1999. A new book ‘Freedom to Freelance’ has been published by Philip Ross that tells the story of the introduction of IR35 and the early ground breaking and pioneering campaign that was fought against it. It was one of the first true internet campaigns and was ground breaking in its use of the new technology and on-line communities. Philip Ross was the PCG’s first director of external affairs, and therefore experienced the IR35 saga in first hand and describes his book as “a great story that needs to be told’.

The book explains that IR35 was a significant piece of tax legislation that the 1999Budget estimated would raise  around £450-£900m a year in revenue, but it didn't get a mention in the budget  speech, instead it was relegated to Inland Revenue press release 35 - or IR35. The press release and commentary around suggested that the target was ‘kitchen fitters’  and workers who left their jobs on Friday's only to return on Monday as freelancers. In actual fact its target was freelance IT workers. It took a while for anyone to find it, but once they did news about it spread like wild fire. 

At the time one of the very few working communities that was connected to both the internet and email were IT workers. The key information site they all settled on was one run by ex-contractor Andy White. Overwhelmed by the traffic and requests for information Andy White formulated a business plan and put it to his mailing list. If he could raise £100,000 in six days then they could run a campaign. 2,002 contractors pledged £50 and so the campaign and the Professional Contractors Group was formed.

Armed with resources White hired in both a public affairs expert and press officer and accounting expertise and contractors flocked to the standard as they began their campaign in earnest against the Government. They setup up ground breaking on-line communities they were able to collectively pool their technical and analytical expertise. They battled their way to the negotiating table to provide a genuine representative voice for contractors. They exposed the fact that the Government has failed in its statutory duty to write a Regulatory Risk Assessment for the new tax. When the Government hastily produced one they shot so many holes in it that the Government had to rewrite it. The Government then did themselves no credit when they admitted in Parliament that the tax was being introduced to help bigger companies and they were red faced when it was exposed that they had been holding secret meetings about it with them.

Suddenly this obscure tax was now on the front pages of national newspapers and was discussed in the financial columns and was like a rash all over the trade press. The Government position buckled. As the PCG were bringing down the intellectual weight of the Adam Smith Institute on them they announced that they were reforming their proposals.  Instead of modelling IR35 on the tax for construction workers and making agencies collect the taxes, they changed to model the tax on self-employment law and let contractors keep their limited company structures. This sounded good on paper but tax and employment specialists pointed out that little case law existed for the modern knowledge based worker who instead of doing manual labour using their own spanners and wenches used someone else’s software and their intellectual capital.

The Labour conference saw a speech from the floor that shocked delegates when it explained the workings of IR35 and the Government’s own figures that 66,000 businesses would close down. The ICAEW and other tax and small business bodies would condemn the tax and asked the Government to think again, but the Government remained both furious and steadfast in their determination to implement it with no further compromises. 

The House of Lords though saw it differently and rejected the legislation and when the Paymaster General chose to reintroduce it unchanged the response of the PCG was a ‘call to arms’ and a ringing of the metaphorical tocsin bell, which in reality was 10,000 emails calling on people to come and lobby Parliament. 1,000 came to lobby their MPs, much to the annoyance of the Parliamentary authorities in one of the first ever internet driven flash style mobs.

Unfortunately the bill was still passed. Weeks later the PCG were in the news again when their members came together to present  the first ever e-petition to Parliament.  They then lodge papers in the High Court to fight the tax and raised £500,000 on-line to fight the case and highlighted the fact that IR35 was causing a brain drain of contractors leaving the country. The Government’s refused to accept that contractors had to use limited companies and their response was to declare to Parliament that contractors were tax cheats because they used limited companies that they had bought off the shelf. They also establish a new ‘fast track visa’ system to bring in cheaper workers from overseas. The Goverment attempt to discredit the tax through a Newsnight story, but in response PCG individual overwhelmed the BBC so much so that the next day Evan Davis made an on-air apology to Newsnight viewers for getting their facts wrong.

Meanwhile Andy White had turned the PCG into mutual organisation that would be owned by its members and a new constitution had been drafted and agreed and a board of directors and a council elected.

At the judicial review the Judge would issue an early warning when he told the court that it was not for him to judge on the fairness of correctness of the tax but only whether it was legal or not. Despite hearing about how badly thought out and implemented the tax was, and even though he may have agreed it was not fair, he declared that it wasn’t illegal and so dismissed the PCG’s case.

The case shook the PCG and dented their confidence. Andy White who had taken a background role returned to the helm as the PCG discovered that while they had been challenging IR35 other Government plans also threatened the livelihoods of contractors. One was the aforementioned fast track visa scheme which instead of being used to fill skills gaps and vacancies was being used by firms to replace UK freelancers with foreign workers willing to work at lower cost. Second, legislation around the new Recruitment Agencies Act threatened to reclassify contractors as temporary workers.

Mutual respect between the Government and the PCG had emerged, senior Labour Lord Haskins declared that the PCG had ‘seriously terrified figures in Whitehall’. Andy White and his team engaged Parliament and Government constructively joining Parliamentary groups and so successful dismantled the fast track visa scheme in a text book campaign and for the agency act they successfully persuaded the DTi to detach contractors from it. 

The IR35 judgement had gone to further appeal at the High Court, but again it had been defeated and they ha d been unable to raise sufficient funds for a House of Lords appeal and a referral to the European court. So unable to stop the legislation going on the statute books or to have it declared illegal the PCG had to rethink its strategy.  Instead of one knock out blow it would have to defeat the tax through case law.

A difficult argument ensured with Andy White and others arguing for tough contractor insurance and a willingness to continue to fight every case. Others wanted to be more selective about what was fought. Also the PCG now had over 14,000 members and some wanted to consolidate its position as a traditional trade association providing services to its members. The end result was that Andy White and his team left in 2002 and PCG pursued a new course. Thirteen years on the campaign against IR35 is still being fought both by the PCG and by contractors themselves armed with tough insurance and good advice.

Overall the story is on not just of an on-line revolution but of a classic revolution too with the drama of political and personal conflicts both against the Government and within the PCG. The book declares that the campaign ad formation of the PCG were revolutionary in nature it draws parallels with historical revolutions for both good and bad and in particular that the founders of such movements are often victims of it. The book has therefore proved popular with political scientists and social scientists looking at the births of new media. As well as with the contractors who were part of it.

In short ‘Freedom to Freedom’ it tells the story not just of the fight against a tax measure but a contemporary and gripping tale of a birth of internet campaigning, which try as it might through on-line forums and sophisticated tools cannot escape its destiny to be a classic human tale.

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