Government trots out 2022 report to keep Single Enforcement Body supporters happy

The most detail yet from the government’s Director of Labour Market Enforcement on what the Single Enforcement Body should do -- and look like -- has emerged.

Margaret Beels speaks in the UK’s official labour market enforcement strategy for 2022-23, of her team contributing to the “design and development” of the SEB.

Published on Thursday, the strategy raised hopes it was an all-clear to form the SEB (to regulate umbrella companies) which Spring Budget 2023, a day earlier, was hoped to contain.

'Independent report, from March 2022'

But the 63-page strategy document is an “independent report;” it contains Beels’ “recommendations,” and most significantly, it was submitted to government almost a year ago.

The labour market enforcement strategy for 2023-24 would be much more valuable as an upload, and Beels is working on that strategy for submission to government before April 1st 2023.

But in the five-section 2022/23 strategy document, the DLME says she is “hopeful” that time in the parliamentary calendar will be found “as soon as possible” to allow the SEB to be set up.

'Single Enforcement Body licensing function at least three years away'

More positively for those backing its formation, Beels talks of the Single Enforcement Body in terms of “as and when” -- as opposed to ‘if and when.’

Yet in a sign of what ‘when’ might mean, a recommendation which she tables in the report on the SEB’s “licensing function” is allocated by her a ‘delivery timescale’ of “3-plus years.”

More immediately (given its March 2022 composition), the document states that learnings to inform the development of the SEB should be delivered in “1 year.”

'SEB is a significant undertaking'

“The creation of the SEB is a significant undertaking involving far more than simply placing the three existing enforcement bodies under one roof,” Beels cautions in the year-old strategy.

“A SEB will have to grow, evolve and adapt over time, with the priority being on getting the fundamentals in place through primary legislation.”

Another reason for the SEB still potentially being far off might be “resourcing pressures” on the three enforcement bodies which would ultimately be rehoused into the body.

'SEB transition period'

“Fewer staff [at the time of writing, down seven per cent on what they were two years ago] combined with more rapid staff turnover will impact on the capability and quality of compliance and enforcement that is delivered.

“This could be further compromised during a SEB transition period,” the DLME continues, “as resources from each of the bodies will be needed to manage and prepare”.

Such warnings by Beels might balance out what will otherwise be a much-appreciated update about the SEB, which the 2022/23 strategy document hails as a “once-in-a-generation opportunity”.

'Government has since depriortised the labour market'

But it’s not the only reason that reactions to the report, written12 months ago, surfacing now now are bitter-sweet.

“On [the] one hand, I’m glad this document is finally here… [but] it’s very disappointing that the government has [since] deprioritised dealing with problems in the labour market,” says Julia Kermode of IWORK, referring to Grant Shapps MP shelving the SEB in December.

“Many people continue to be exploited,” Kermode, IWORK’s chief executive added on Friday.

“Westminster has been talking about regulating the umbrella sector for years and made no progress whatsoever.”

'More than disappointing'

Continued exploitation of umbrella company workers without a framework to protect them, or even just provide redress, deeply troubles campaign group Contractor Voice.

“It was more than disappointing to, yet again, see so little focus on the umbrella sector, without any detailing of any regulatory plan,” the group’s Jacob Bellas said after Wednesday’s Spring Budget.

Following no mention of the Single Enforcement Body by chancellor Jeremy Hunt in his Red Book, compliance firm Pendragon Consultancy condemned: 

“[It was] extremely disappointing but not surprising to see this government have once again failed to seize the opportunity to make the necessary market corrections needed within the contracting sector.

“Far from getting tax avoidance under control, they are sending a message to bad actors to continue without abatement.”

'Schemes shut faster than they open'

Of Mr Hunt’s offering last week to combat avoidance – a plan for a new criminal offence targeting promoters who flout ‘Stop’ notices, the initial disquiet continues.

“These schemes [which often masquerade as genuine umbrella companies] are often shut down [by the promoters] faster than they’re open,” began Stonebridge Contracting’s head of compliance Olivia Sear.

“Taking into consideration how [slow] HMRC are with any form of communication, we’ll be lucky if they even catch wind of the scheme to issue the notice [to], before its closed down and another has opened up.”

'IR35 changes may have accelerated umbrella company usage'

However in the DLME’s newly published 2022/23 strategy document, there are two acknowledgements relating to HMRC which are being welcomed.

Firstly, “the government has acknowledged here that IR35 reform pushed contractors into working via umbrella companies,” says Qdos CEO Seb Maley.

An IR35 contract reviewer, Mr Maley was referring to the strategy document stating that “early indications are that IR35 changes may have accelerated” growth in umbrella company usage.

The second acknowledgement is just how populous the umbrella market is, given that the DLME’s strategy document cites HMRC estimating half a million workers to be using brollies as of tax year 2020/21.

“[A Single Enforcement Body to] regulate the umbrella industry will help flush out tax avoidance schemes and in turn, protect the 500,000 people working through umbrella companies in the UK,” says Fred Dures of Payepass. “[But] it was only months ago that Grant Shapps [effective]y said [the SEB] was being shelved.”

'Off-payroll rules brought opportunity to cash-in'

However, similar to how the DLME’s strategy report (submitted to government on March 31st 2022) risks appearing out-of-date today, the estimate of umbrella company usage looks behind the times too.

“Since the introduction of IR35, there have been more and more umbrella companies emerging as people saw an opportunity to cash-in in the marketplace,” Clarity Umbrella’s managing director Lucy Smith told ContractorUK.

“And while regulation, including potentially via the SEB, may help in trying to eliminate the tax avoidance schemes which have become more prominent, operating a compliant umbrella company is not as easy as it sounds.

“Let's hope that if the government does finally bring in regulation to the sector, that it goes to support businesses trying to operate compliantly, rather than penalise and create an even more of a monopolised market.”

'Holiday pay and regulation of umbrella companies'

In the 2022/23 strategy document, Beels describes “the creation of a SEB” as presenting “a once-in-a-generation opportunity to bolster existing labour market compliance and enforcement efforts”.

The Single Enforcement Body would also “extend state enforcement to new areas” such as “enforcement of holiday pay and regulation of umbrella companies,” and would “realise the benefits of a more joined-up approach.”

The DLME adds: “Not only would worker protections be safeguarded [by the SEB], but the wider public stands to gain too from greater efficiency and better value for money from its enforcement resources.

“The government has committed to regulating umbrella companies which will be a welcome step towards achieving compliance provided [the] Employment Agency Standards Inspectorate receives the necessary budget to enforce the regulation. Taking into consideration the outcomes of the current consultation, I will work closely with the relevant departments to seek to root out non-compliance in this area.”

'Beels has published due to political pressures'

An adviser to the Freelancer & Contractor Services Association, Rebecca Seeley Harris of ReLegal Consulting, last night said she was heartened but not convinced.

A co-founder of the Fair Umbrella campaign, Seeley Harris told ContractorUK: “Due to political pressures, Beels has published [this] Labour Market Enforcement Strategy 2022/23.

“It’s an interim report, and [in it Beels] has stated that this strategy does not make any new recommendations but builds on the last two strategies from Matthew Taylor CBE -- which were never published. 

“Beels has done a fantastic job under very difficult circumstances, and it was clear she was frustrated by the delays in progress and the SEB being dropped. 

“Her ‘Foreword’ does seem to imply that the SEB will be resurrected. But, the rest of the report seems to still question whether it will happen or not. I would have preferred to see a firm commitment to the SEB or a firm commitment to funding the EAS. As it stands these are only words.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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