Leader – Bringing tax policy up to date

A unique alliance is confronting the government over one of its most controversial tax changes. The Chartered Institute of Taxation has signed up with its main rival the English ICA’s tax faculty and the Law Society and the Confederation of British Industry to condemn the government’s treatment of personal service companies. The fact that such an alliance is ranged against it should make the Treasury and the Inland Revenue think again.

Ministers are used to being told that their policies are either unfair or unworkable. But this time the critics have a point, and it is one that goes to the heart of this government’s taxation policy. Everyone knows that some personal service companies exist for no other purpose than to avoid tax.

But most of them have nothing to do with tax avoidance. In fact, they are the very embodiment of Tony Blair’s new flexible labour market.

New Labour’s approach is in reality very Old Labour. It has much more to do with a view of the world in which honest working folk are on PAYE and only spivs are self-employed, than any coherent policy for a modern tax system.

In Gordon Brown’s rush to link tax to benefits, New Labour seems to have overlooked the fact that it is also encouraging workers out of staff jobs and into entrepreneurial self-employment. Ministers must recognise that a modern tax policy means taking account of modern employment realities.

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