Should the IR35 rules for agency social work be scrapped?
- Yes (71%, 857 Votes)
- No (29%, 352 Votes)
Total Voters: 1,209
Jeremy Hunt has scrapped plans to abolish the IR35 rules for agency social workers and other public sector staff working off payroll.
His predecessor as chancellor of the exchequer, Kwasi Kwarteng, had announced the abolition of the 2017 rules in his “mini-budget” on 23 September.
However, Hunt reversed this – and most of the other taxation measures Kwarteng unveiled last month – in a statement to the media this morning.
He will provide further detail in a statement to Parliament this afternoon, but the Treasury has estimated that retaining the rules, along with similar ones for the private sector introduced last year, would save £2bn a year compared with the plan to scrap them.
The U-turn means that employers will remain responsible for ensuring that agency workers who provide their services through a company pay appropriate levels of tax.
‘Widespread non-compliance with tax rules
The 2017 reforms were designed to tackle what the government described as “widespread non-compliance” with IR35. To prevent agency staff from avoiding tax by being paid through a limited company, it made the public body engaging them responsible for determining whether they fell under IR35.
This gave agency social workers three options: going directly onto agency payrolls (on a reduced hourly rate), working via an umbrella company (through which they should accrue some employment rights, such as holiday pay) or staying responsible for their own limited company but being taxed at source.
In a report published alongside Kwarteng’s statement last month, the Treasury said scrapping the rules would “free up time and money for businesses that engage contractors, that could be put towards other priorities”.
“The reform also minimises the risk that genuinely self-employed workers are impacted by the underlying off-payroll rules,” it added.
The proposed change had been welcomed by the Recruitment and Employment Confederation, which represents employment agencies, and the Association of Independent Professionals and the Self Employed, which represents self-employed staff. The British Association of Social Workers and Association of Directors of Children’s Services responded cautiously to Kwarteng’s plan, saying they would await further details.
However, Hunt’s announcement means it will no longer go ahead.
Efficiency savings to come
The chancellor also said government departments would need to find “efficiencies” from their budgets for 2022-25, with further details provided in the fiscal statement due on 31 October.
In last October’s spending review, the government’s announced that funding for local authorities would rise by 3% a year in real terms from 2022-25. However, the Institute for Fiscal Studies (IFS) calculated at the time that, on a like-for-like basis, the rise would amount to 1.8% a year as government’s figure included the £3.6bn allocated to fund the additional responsibilities councils will assume under the reforms to the adult social care funding system, including the cap on care costs.
The prospectus for council funding has worsened since October 2021 due to spiralling inflation, which means that the 2022-25 settlement is worth much less in real-terms than previously thought, a development the IFS described as a “hidden form of austerity”.
At the same time, a string of reports has called for increased investment in social care amid increased waiting lists and staffing shortages in adults’ services, alongside a fear that the funding reforms are underfinanced, and ongoing pressures in children’s services related to placement costs and bills for agency social workers.
However, with Hunt now expecting departments to make further efficiencies, the situation could get worse still for local authorities and social care.