Brexit, Covid, poor working conditions – they have all been blamed for the HGV driver shortage causing this week’s panic-buying at petrol stations. But one lesser-known factor is having a disproportionate effect: a change to taxation known as IR35.
What is IR35?
IR35 was conceived of in 1999 as a way to prevent some employees (and their employers) from exploiting a loophole that allowed them to pay less tax if they were self-employed. It was overhauled in 2017 to put the onus on agencies to ensure their “freelancers” were complying with the rules.
The new format meant people who were registered as a limited company but worked regularly (and, often, exclusively) for a specific client could no longer use “freelancing” as a loophole to avoid paying National Insurance contributions, among other things. In 2019 HMRC won a high-profile case against three BBC presenters – Tim Willcox, Joanna Gosling and David Eades – who were operating as freelancers while deemed to be essentially employed by the BBC.
Why is IR35 making the fuel crisis worse?
Although the rules have been trailed since 2017 (and pushed back once because of Covid), IR35 was only officially introduced in the private sector in April this year – just as the world was starting to open up and the effects of Brexit were beginning to be felt.
That meant agencies that supplied drivers, whose employees had until then been operating as limited companies, were faced with a 25 per cent rise in the cost of employment. The Road Haulage Association (RHA) said this worked out at an increase of about £5-6 per hour. According to the agency Driver Require, agencies operate with typical profit margins of less than 2 per cent. Many were either forced to pass that cost increase on to their drivers and clients, or to go bust.
“Margins in the haulage sector are extremely tight and there is little room for manoeuvre,” Driver Require said before the rules were introduced.
“Drivers could take a cut in their net income, though it is feared that if this is too severe many British nationals will give up [HGV] driving for a career, while continental European drivers will ‘vote with their feet’ and seek employment on the continent, where net pay will be higher and they will be ‘closer to home’.”
This month (September) the audit firm Mazars reported that in June haulage firm insolvencies had climbed to their highest since January 2019, although it largely blamed a backlog in tests for drivers, as well as a drop in shipping between the UK and EU. However, a survey of haulage firms published in July by the RHA found 53 per cent of respondents said IR35 was one of the main reasons behind the driver shortage.
Should IR35 be scrapped?
HGV drivers are being careful what they ask for. In a letter to Boris Johnson in June that called for the Prime Minister’s “personal intervention to help resolve the significant and rapidly deteriorating shortage of HGV drivers”, the RHA was clear that IR35 was having an impact: “The introduction of IR35 has resulted in agency labour withdrawing their services as low-profit margin logistics businesses (typically 2-3%) cannot sustain demands for £5-£6 per hour rate increases.” But the letter refrained from requesting outright that IR35 be scrapped, continuing: “We welcome legislation that ensures fair and equal tax for all. However, government must now recognise the repercussions of this and the other issues mentioned and urgently intervene to help us to resolve the resulting crisis.”
Other campaigners have pointed out the detrimental impact of the tax change, but it does not seem likely there will be a reversal.
How do we end the fuel crisis?
In June the RHA asked the government for a temporary worker visa for HGV drivers and a taskforce to help the industry tackle a skills shortage created by ageing drivers. The government has announced a temporary visa scheme for 5,000 lorry drivers, which will end on Christmas Eve. However, the Petrol Retailers Association (PRA) has said it won’t help alleviate the crisis now. At the moment, fuel is in refineries rather than in petrol stations – the “wrong place for the motorist”, the PRA chairman Brian Madderson told the BBC.
“Measures introduced by the government… are not ultra-short term. We might see benefits of them later in the autumn as the drivers come across and start to work. But in the very short-term this panic buying has caused really serious problems.”