Corbyn in vow to ban umbrella companies

The Labour party will shut down and outlaw all umbrella companies if it is elected on June 8th.

In its official manifesto, Labour’s leader Jeremy Corbyn pledges to “clampdown on bogus self-employment” by “banning payroll companies, sometimes known as umbrella companies”.

Published yesterday, the party’s manifesto says that such companies “create a false structure to limit employers’ tax liabilities and limit workers’ rights.”

The pledge to ban them is one of seven that Labour’s manifesto makes on self-employment -- which has “many benefits” but which engagers use to “avoid costs and their duties to workers”.

The double-emphasis on workers is not accidental. Ideologically, it ties in with Labour’s election mantra to be “for the many, not the few.” It also comes 24 hours after the Tories' policy pledges to workers emerged.

Labour’s other proposals for the self-employed include shifting the burden of proof so that the law assumes a worker is an employee unless the employer can prove otherwise.

And the party says a Corbyn-led government would force end-users and recruitment agencies to become jointly responsible for enforcing agency workers’ rights.

But it is the brolly ban that has caught the contractor’s industry attention. The Freelancer and Contractor Services Association (FCSA), whose members include umbrella companies, said:

“It would be foolhardy to ban umbrellas unilaterally considering that this sector is worth more than £3bn in tax and national insurance contributions to the exchequer annually.”

The FCSA pointed out that, despite Labour’s intention to boost workers, shutting down umbrellas would be counterproductive because proper umbrellas provide their users with full employment rights.

Not seeming to realise this, but being aware that poor practices exist in a sector that is unregulated, indicates to the FCSA’s Julia Kermode that “Corbyn and others [in the Labour party] clearly don’t understand how umbrellas work.”

Or the party does understand, but regards umbrellas as being among ‘the few’ it wants to target, not ‘the many’ it wants to help. Philip Ross, Labour’s ambassador for freelancing and self-employment told ContractorUK:

“Fundamentally we need a market that works for freelancers and their clients not one that enriches agencies and umbrella companies.”

Although he was speaking in a personal capacity, not on behalf of Labour, Ross said he knew the party to be concerned about “forced” self-employment; not just ‘bogus’ self-employment.

“The Tories are forcing many public sectors contractors to use umbrella firms,” he claimed, seeming to refer to the effect of the government’s recently introduced off-payroll rules.

“So I would welcome this approach to counter that on its own… [even if] personally I can see a role for umbrella firms for people to use in the short-term.”

Writing today for ContractorUK, an umbrella boss whose firm would be shut down by the ban cautions that a popular stepping stone to full employment could be removed, forever.

“Without umbrella companies, fewer temporary workers would have access to employment,” says Graham Fisher, CEO of Orange Genie. “And more would be at risk of exploitation.

“Compliant umbrella companies actually help to protect workers… [and they] help their agency partners to fulfil their legal obligations and improve compliance across the whole supply chain.”

But the problem comes where umbrellas are used as a vehicle on an industrial scale; where they are not in the best interests of their users, and where employers’ tax and workers’ rights are curtailed, says Ross.

“My own suggestion, which I made at Labour's self-employment commission in March would be to also force agencies to be transparent about their margins to both the end -client and the contractor,” he said.

“As well as [transparency around] anything received from any such umbrella firms. How can it be when I buy a pension or mortgage I can see that commission, but not from an agency?”

The FCSA also has an alternative: “Rather than a blanket ban,” it said, “we would look to work together with Labour policymakers on initiatives that promote compliance and truly support workers that choose to work through umbrellas.”

But Mr Fisher isn’t so sure that Labour wants to listen.

“We believe the people [in the Labour party] who wrote this [manifesto pledge to ban umbrellas] have no interest in understanding the contracting sector, or contractors themselves,” he said. “The ignorance on display here is wilful, one might even suspect cynical and self-serving.”