Mike Newton: It may not sound it but reform of IR35 is the road to upward mobility

Mike Newton was Conservative parliamentary candidate for Wolverhampton West, and worked for the Bank of England during his career in the financial markets. 

Back in the 1990s, I sat in the Cambridge Union and watched a Conservative MP dismantle the economic arguments of the Left with a mixture of skill and brutality.  I had only seen this man on television until then, but I was compelled by his arguments, rooted in the values of our country’s great mass of ordinary decent people, delivered in a classless London accent.

Afterwards I had Norman Tebbit sign my plaster cast (I had broken my wrist during football and he was amused by the cast’s potential value as an on-field weapon). His banter with the lads was excellent, with numerous criticisms of hair and clothing.  But my views had been changed forever.

He had broken the link between the state and wealth creation.  He had made it clear that an individual will work hard to improve his life, and his family’s, but will not do it for the taxman.  And he was fiercely unapologetic about the Conservative Party being the only true national party, representing not narrow class or sectarian interests, but the broad sweep of those who believe in instinctive British values.

My family has always loved to work.

It brings dignity and the means of self-advancement: money.  My mother was a probation officer between spells as an administrator in a Stoke potbank and a junior school.  My dad and his brothers were teachers.  My uncle Thomas ran the bus services in Lancaster and Morecambe, and still works in buses at the age of 83.

My first job was in a Little Chef, then graduating to being a pigman and a potato sorter on farms, before going on to have a professional career at the Bank of England and in financial markets.  I now own several SMEs, from hospitality and consultancy to railway loco leasing.

It kills me when bureaucracy, however well intentioned, stands in the way of people getting ahead.

As Conservatives, we need to be there to advocate for those that want to get on in life, representing the aspirational while caring for the most hopeless and vulnerable individuals if their own families cannot.  We must be the party of business, social order and national defence.  We have not always been like that in recent years, for which we must all share some responsibility, but the ship is rapidly turning under Kemi.

In his speech at Conference Andrew Griffith, the shadow Secretary of State for Business and Trade, opened a new front in our fightback on behalf of business.  Building on work done the past year in punching Labour to a standstill on a variety of issues, he introduced some detailed policy proposals.  However, lost among the red meat of the headlines was a commitment to reforming IR35.

Tax technicalities are generally a reason to, figuratively speaking, ‘swipe left’ which is why I have allowed a certain amount of mood music to build up before getting to the point.  ’35’ goes right to the root of the war on small business: right up there with the Employment Rights Bill and NIC changes as nuisances to the SME sector that we must eliminate.

IR35 is an HMRC regulation that governs how the relationship between a business and a contractor is taxed.  It is designed to make sure a contractor is exactly that, and not a shadow employee, with the hiring business thus avoiding its legal obligations on payroll taxes and other benefits.  No one can argue that this is not right and proper, but like most well-intentioned legislation it has had unforeseen negative consequences, and acted as a brake on small business growth and the aspirational individual.

The central problem with IR35 in its current form is that it discriminates against small businesses who legitimately want to act as contractors, but are frozen out. I was speaking to an accountant up here in the Midlands on this issue and he noted ‘we see many larger businesses just applying a blanket judgement to refuse limited company SMEs as a contractor – even in cases where a CEST (Check Employment Status For Tax) certification has been carried out – in order to limit exposure to risk of any compliance checks by HMRC.’

This cannot be right.

The IR35 rules are a mess. A number of high-profile entertainment cases have spoiled the pitch for the ‘nuts and bolts’ part of the economy that urgently needs a growth boost.  It needs sorting out.

As an instinctive free market Conservative, one option would be full abolition of IR35, and remove the firewall between who is an employee and who isn’t.  This would remove at a stroke the tiresome gaming of the rules the current system allows, and provide some benefits for both employers and employees.  However, it would not be acceptable to give firms a blanket mandate to de-lever their entire payroll and expect individuals to set up companies, pay tax and manage their healthcare and other benefits.

Most people do not want, or are capable of coping with, that kind of risk.  And they do not have time, given the demands of family life.  So a judicious solution would be to make some reforms to IR35 and adopt a watching brief to see if these were impactful, while retaining the option of more radical action.

The main change should be shifting the burden of proof to the contractor.

This would give bigger firms no excuse not to hire SMEs on compliance grounds.  It could be also backed up by a ban on firms blanket-refusing to hire SMEs due to IR35 concerns, although I am naturally wary of adding another rule to the red tape burden businesses already face.

As a party we are once again fully engaged with business and committed to making Britain wealthy again.  There are many things more exciting than IR35 reform, but it is important.  Upwardly mobile SMEs owners are our people, and today’s start-ups are often the generationally consequential mega-businesses of tomorrow.

Andrew Griffith and his colleagues have shown they are serious about action, not sympathy.  It is up to us to make sure that we take the fight to Labour and Reform on this issue.

As an SME owner, I know it makes sense.  And I suspect Norman Tebbit would agree.