New Government. New Direction?
Following the almost predictable outcome of the July General Election, the industry is considering the promises and pledges of the Labour Party and trying to understand what the future might hold.
Having made public the true state of the nation’s finances it inherited, the new government immediately responded to the spending pressures in a statement by Labour Chancellor Rachel Reeves in the House of Commons on 29th July.
Contained within it were proposed cancellations of infrastructure spend and an immediate cost cutting review amongst all government departments together with plans to strengthen the fiscal framework to avoid future unexpected ‘black holes’ in the UK government’s tax and spend policies.
Labours plans to ‘Make Work Pay’
At a more granular level we know that the Labour Party’s manifesto made a big play on the reforms it would make to the world of work. It promised that it would enact its ‘Plan to Make Work Pay’ within the first 100 days of the Labour government coming into office – in other words, by 4th October 2024.
The King’s Speech delivered on 17th July included those plans, in essence, in the form of the Employment Rights Bill. Although much of the Bill focuses on the rights of employees and the duties of employers there are several elements which will be of interest to contractors:
- Abolition of exploitative zero hours contracts – many contractors enjoy flexible working hours, and therefore we shall have to see how this develops.
- Worker status to be reviewed. Abolishing the 3 separate status of employment: employee, worker and the self-employed and move towards a single status of worker (whilst retaining self-employment) – it’s acknowledged that this will take time.
- Creation of a ‘genuine living wage’ to account for the cost of living. This will involve changes to the remit of the Low Pay Commission when setting rates and the removal of the under-18 years pay differential. Furthermore, ensuring travel between sites is paid for and reflected in employees’ contracts which was also viewed as important.
- Establishing a Single Enforcement Body to draw together existing agencies responsible for NMW enforcement: the Employment Agency Standards Inspectorate, the Gangmasters and Labour Abuse Authority and HMRC National Minimum Wage Enforcement. This has been long called for by the labour supply sector and the government must ensure that it is properly funded, has extensive powers to enforce workers rights and sufficient inspectors to carry out compliance checks.
What else does Labour have up its sleeve?
Other government intentions around fiscal and tax reform announced in the background to the forthcoming legislative programme included:
- Removal of exemption from VAT for private school fees. Anti-forestalling legislation may be introduced to block VAT advantages from making pre-payment of fees – a common strategy used where plans to change the tax rules or rates are trailed well in advance of a Budget.
- Pension Schemes Bill to support and encourage better performance of private pension schemes with a Value For Money approach.
- Reform of the Apprenticeship Levy – long recognised as not delivering the desired outcomes.
- New powers to sanction company directors for serious failures relating to financial reporting and auditing – to avoid future Carillion-type collapses which left subcontractors owed millions.
Tackling tax avoidance is on the radar
In common with most new governments there is a pledge to allocate additional funding to HMRC to tackle tax avoidance and tax evasion. Labour intends to provide extra staff and investment in data collection and AI.
HMRC usually focus their compliance and investigation efforts on large businesses where risk and rewards are greatest. However, with the tax gap rising will HMRC’s efforts be more focussed on small businesses where much of that gap, according to 2022/3 figures, indicates that 60% lies?
It’s not unreasonable to expect the outcome of the current ‘Tackling non-compliance in the umbrella marketplace’ to be concluded later this year or early in 2025. Given Labour’s historical penchant for introducing controls, we could see enhanced measures being introduced with a formal registration system.
IR35 enforcement activity and use of HMRC’s powers under the agency workers’ tax regime is likely to continue at pace.
If the government is true to its promises and tries to get a grip on the providers of tax avoidance schemes we may finally see the doors close on those rogue players who have tarnished the reputation of our sector for far too long.
Contractors should be more aware than ever of ‘too good to be true’ offers from new umbrellas and other providers. These are the first to disappear leaving the contractor holding the tax bill.
