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By Lisa Burroughes, 15 October 1999 00:30

NEWS The House of Lords has rejected the government's IR35 clause in the Welfare Reforms and Pensions Bill. The controversial clause targeted one-person service companies, and could have significantly increased their tax and National Insurance payments. The government had already been forced to amend its proposals because of concerns they would damage the UK economy. But the House of Lords argued that the proposals, even in their revised form, would have been unworkable. Lord Goodhart also pointed out that the government's amendments, made on 23 September, "give a significant advantage to a client that deals with a personal service company rather than directly with the worker". The final vote was 84 to 66 in favour of rejecting the clause altogether. Many members suggested the clause should go through a full consultation process, so it can be written up in a way that the government's aims are achieved without damaging the economy. Lord Higgins suggested that IR35 should in fact be dealt with in the forthcoming Finance Bill instead. Iain Sutherland, director of the 3 Sixty Group has been among those campaigning for a more workable solution. "The 3 Sixty Group believes the government hasn't treated contractors as genuine entrepreneurs, but we are now left in a situation where democracy has spoken. The Lords have clearly stated that the government hasn't properly dealt with this matter," he said. The Welfare Reforms and Pensions Bill will now return to the Commons and Social Services Secretary, Alistair Darling, has said he stands by the principles of the Bill but will have to rework the details. An Inland Revenue spokesman said: "The Bill is now back in the hands of the ministers and we need to wait to see what they do next." David Ramsden, of the Professional Contractors Group, said he hopes the move will encourage the government to seek proper consultation. "We hope the government will take this opportunity to talk to us and devise a way forward which doesn't damage the entrepreneurial businesses in the knowledge-based sector," Ramsden said.