The Government has missed an opportunity to do away with the “Wild West” of the umbrella market by choosing not to move forward with amendments to the Finance Bill, according to some in the contracting industry.

The amendments, tabled by David Davis MP and supported by Sir Iain Duncan Smith MP and Andrew Rosindell MP, were described as having the potential to ‘curb or kill’ the umbrella industry.

Essentially, the two options proposed would have either shut down the umbrella industry, or made agencies liable for unpaid tax if they worked with non-compliant umbrella companies.

However, the amendments were not selected for a vote in parliament last night, despite impassioned speeches by Davis and Duncan-Smith in the House of Commons.

“The umbrella companies and their unacceptable practices have now become very clear,” Duncan-Smith told the house. “Contractors are being forced into schemes, being forced by recruitment agencies to use these umbrella companies that they do not wish to use and may be concerned about.”

He said workers were often misled by umbrella companies, and referenced both the recent BBC File on 4 expose on mini umbrella companies and also the Loan Charge issue.

“The people who will get hurt by all of this in the end when the Treasury finally decides to do something about it will be the people that were the victims of this, not those who set these schemes up,” he said.

‘Missed opportunity’

Dave Chaplin, CEO of ContractorCalculator, who had been pressing for the changes and who also gave evidence to the Loan Charge All-Party Parliamentary Group Inquiry, said he was disappointed with the result.

“After considerable effort to attempt to shape reasonable amendments to the Finance Bill, it is disappointing that they were not selected to be voted on last night. Clearly, the Conservative majority would have been insurmountable and 40 rebels would have been required.

“The Treasury missed an opportunity to tame the ‘Wild West’ of the unregulated umbrella market and collect their £1 billion prize.

“The continued lack of regulation and impotence by the Government on this issue will only seek to fuel the non-compliance further.”

Crawford Temple, CEO of Professional Passport, expressed a similar view: “It is disappointing that after much considered and well-presented arguments by David Davis and Iain Duncan Smith last night the Government chose to dismiss the issues sought to be addressed.

“[Treasury Minister] Jesse Norman believes that adding enforcement to the remit of the Employment Agency Standards Inspectorate (EASI) will address the issues of non-compliance in the umbrella sector. I would like to remind the Government that EASI is already struggling with its existing commitments of regulation so I fail to agree that tasking an already over-stretched body with the job of regulating umbrellas will change anything and that the Government’s solution will merely serve to incentivise and fuel more non-compliance across the market.”

Stamping out malpractice

While umbrella organisations had understandably been opposed to the calls from some politicians to scrap umbrella companies entirely, legitimate providers have backed calls for regulation of the industry.

The report that resulted from the Loan Charge inquiry exposed significant malpractice in the umbrella industry, including companies providing kickbacks to

agencies for recommending them to workers.

This had come at the expense of workers, whose pay and/or benefits were often skimmed, and also the Treasury, which lost out on tax revenue.

“The problem is the worse the level of malpractice in this process, the greater the rewards and kickbacks for the agencies, reducing of course the revenue for the Treasury,” Duncan Smith said in Parliament.

Malpractice also makes it harder for legitimate and compliant umbrella companies to compete, said Chaplin.

“There are umbrella companies that run a vanilla compliant operation, with no reward schemes for agencies, and which treat workers fairly with reasonable charges, but they find it harder to access the market, because they lack the financial firepower to purchase space on an agency’s Preferred Suppliers List – for which six-figure sums can be exchanged,” he said.

Photo courtesy of Canva.com