Conservative leader William Hague has renewed his party's opposition to the IR35 contractors' tax changes in a speech launching Tory ebusiness strategy.
He described the move, which will come into effect at the start of the tax year in April, as "a stealth tax" during the speech yesterday. Industry groups said the move could prompt many contractors to move abroad.
"Its name shows just how stealthy it is - it was sneaked out in Inland Revenue press release number 35 on Budget day last year," said Hague.
"Small companies are deeply worried about this new tax regime, which is forcing them to consider setting up shop away from the UK," he said. "IR35 could cause a brain drain not seen here since the 1970s. It is exactly the wrong approach to the new economy."
At this stage, however, very few contractors have left the country, according to recruitment consultants - although some say they have received more enquiries about emigration.
"People are waiting for Tuesday [Budget day] to see exactly what will be there," said Mike Cullen, chairman of the British Computer Society's contractor division. "An awful lot are quietly preparing."
Susie Hughes, spokeswoman for lobbyists the Professional Contractors' Group, said some agencies are not close enough to their customers to realise they are leaving. "The first they will know is when the contractor's phone rings off the hook." She added that IR35 has already convinced freelancers currently working abroad to stay there.
Asked whether Hague's intervention could cause the government to reconsider, Hughes said: "One would hope so. However, to date, the government has lived down to our expectations at every turn."
Other countries are currently relaxing visa regimes for IT staff. German chancellor Gerhard Schroder last month told delegates at the Cebit trade show that he will offer work permits to non-Europeans with technology skills. UK nationals can work in Germany or other European Union countries without a work visa.
William Hague also used his speech to attack the UK government's approach to share option schemes, under which National Insurance contributions will be taken from the proceeds of such programmes.
Vnunet.com will have extensive coverage of the Budget starting on 21 March.
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