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The tax change laying waste to our IT and construction industries

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IN HIS book Accidental Empires, Robert X Cringely showed how, far from being the well-thought-out strategy of major corporations, the IT revolution which has utterly transformed the world was the result of amateurs, hobbyists, misfits and fanatical obsessives fascinated with electronics who created a unique culture in the San Francisco area. It was a ‘bottom-up’ revolution, driven in the early days by intellectual curiosity as much as anything else.

It has taken Britain several decades to develop anything even remotely approaching the astonishing ecosystem of Silicon Valley, but at last we have one: with a dynamic IT start-up culture working in symbiosis with the financial power of the City, London dominates the ‘Fintech’ (financial technology) scene. In Europe rivalled only by Berlin, London’s IT industries are creating companies, wealth and very highly paid jobs almost too fast to fill them. 

And we are now about to throw it all away, sacrificed on the altar of a seemingly unquestionable but actually pernicious idea: that of equal pay for equal value.

The change to ‘IR35’ tax legislation that comes into force on April 6 is meant to tackle what the Inland Revenue term ‘concealed employment’, namely that a self-employed contractor doing the same job as a permanent employee should be taxed equally. Entirely predictably but unforeseen by HMRC, this is devastating the contract market across many vital sectors such as IT and construction. Thousands of contractors are being sacked, walking out or leaving for more hospitable tax jurisdictions. London’s highly dynamic but delicate IT eco-system is being ruined in the process, and the hoped for gains in tax revenue evaporating in front of HMRC’s eyes. [As an IT consultant myself, I should declare a very strong interest in this matter.]

This disaster has unfolded due to a widespread misconception about employment and equality, namely that there is only one value of a job, ie the value to the employer, completely omitting that jobs also have a whole range of monetary and non-monetary values to those who do them.

Imagine, if you will, two coders, Ben and Simon. Ben is a permanent employee in a design agency, whereas Simon is a contractor. Their skill levels are roughly the same; however as a permanent employee, Ben gets paid holidays, pension contributions, sick and redundancy pay. Like everyone else, his job has quiet periods and stressful times, but he goes to work knowing the people and systems he is working on, and his outlook is reasonably secure.

Ben’s firm has a surge in demand and decides to engage Simon on a short-term contract, and they work together. They do pretty such the same thing, so according to the Inland Revenue they should be taxed equally. Only fair, right? However, when demand falls back to normal, Simon is let go, often with only a few days’ notice. Unlike Ben, Simon has no job security, no employment benefits and as a contractor his life is a constant whirlwind of interviews and new starts, many of which involve walking into a highly stressful sh*tstorm, working with people and on systems he is unfamiliar with, against very tight deadlines. Although for the short time they work together the value of their services to the employer is identical, Simon’s life is much more stressful and insecure than Ben’s. From his point of view, the non-monetary value of his work situation is much lower, and he expects considerably higher pay and more lenient taxation to compensate him for that. His relatively high income sees him through fallow times between contracts, which he uses to upskill or work on his own start-up idea.

In short, there is no one ‘value’ to a job, and to insist on ‘equality’ based on only one variable is actually deeply unjust. We have seen similar absurdities in the equal pay claims that hit supermarket chains, where cashiers in shops demanded pay equality with those working in warehouses, even though the latter’s working environment is considerably worse.

The problem is that government and the public sector simply do not see it that way: their perceptions are moulded by a deeply paternalistic but wholly outmoded view of employment where those doing a job are essentially victims: docile, passive creatures forced to undertake tasks whose value is defined solely by the employer, rather than independent actors capable of initiative, drive and agency. The highly entrepreneurial contracting world is just the latest casualty of the top-down authoritarianism that is ruining so many aspects of our lives. In its response to the catastrophe of IR35, we shall see whose side Boris Johnson’s government is really on.

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Andrew Cadman
Andrew Cadman
IT Consultant who works and lives in the UK. He is @Andrewccadmanon Parler.

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