Government accused of leaving umbrella company regulation in limbo by shelving enforcement body

The UK government’s commitment to protecting IT contractors from the well-documented malpractice carried out by non-compliant umbrella companies is being called into question, following the admission that plans to create an enforcement body to regulate such firms have been shelved.

Business secretary Grant Shapps confirmed during a House of Commons oral evidence session in mid-December 2022 that plans to create a Single Enforcement Body (SEB), the remit of which would include keeping tabs on non-compliant umbrella companies, had been put on hold.

The Department for Business, Energy and Industrial Strategy (BEIS) set out plans in June 2021 to create a “powerful watchdog” that would see three major government agencies join forces to clampdown on workers’ rights violations and provide support to umbrella company contractors.

The agencies involved were set to include HM Revenue & Customs (HMRC), the Gangmasters and Labour Abuse Authority, and the Employment Agency Standards Inspectorate (EASI), with BEIS talking up the move as a key step in its work to protect contractors from non-compliant umbrella companies.

In response to a question about the department’s commitment to creating the SEB, Shapps said departmental priorities had now shifted, as a result of the Covid-19 coronavirus pandemic and the relatively short amount of Parliamentary time left to deliver on its plans.

“Given that we have spent more than two years of this Parliament fighting Covid-19, we have then seen the way that individual enforcement bodies are operating,” he said, as detailed in a transcript from the session.

“It may be that with two years left of the Parliament, we are still able to address Single Enforcement Bodies…[although] we are more interested in ensuring that the bodies that are already in place are operating effectively.”

As alluded to by Shapps, Computer Weekly understands that one of the biggest barriers the government has faced when trying to create the SEB is that doing so would require legislation to be passed and – since it was first announced – there has been insufficient Parliamentary time set aside to do so.

The government has come under growing pressure since announcing the SEB to provide updates on how its plans were progressing, as well as information on how the body would be funded, from various contracting market stakeholders.

As reported by Computer Weekly in May 2022, concerns the government’s plans may have hit a stumbling block emerged after that month’s Queen Speech failed to make any mention of an Employment Bill, which may have provided a delivery timeline for the SEB.

In a series of posts on social networking site Twitter, the government’s director of labour market enforcement Margaret Beels lamented the lack of references made during the Queen’s Speech to the SEB, describing it as a “real disappointment” because it meant having to wait even longer for the necessary Parliamentary time to make it a reality.

Computer Weekly contacted BEIS, on Beels’ behalf, to see if she had any comment to make on the news that the SEB plan is now on hiatus and was told she would be unavailable for interview.

A spokesperson for the department, however, did supply the following statement: “This government has a strong track record in supporting workers across the UK – from helping more people into work so there are now more employees on payroll than ever before, to raising the national living wage to its highest rate yet.”

The spokesperson added: “As well as working to ensure that existing bodies setup to protect workers’ rights are operating effectively, we have also backed a number of reforms including guaranteeing one week’s unpaid leave per year for carers, giving employees a right to request flexible working, extra redundancy protections for women, and a guarantee that hospitality staff get their tips in full.”

Even so, with recurring reports of non-compliant umbrella companies withholding holiday pay, taking unauthorised sums from contractor pay packets or unwittingly involving participants in tax avoidance schemes, the government’s decision to shelve the SEB has not gone down well.

Crawford Temple, CEO of independent umbrella company compliance assessment firm Professional Passport, told Computer Weekly of his disappointment at the government’s decision not to press ahead with the creation of the SEB at this time.

“I am not entirely surprised, as it was always going to be difficult to achieve. With plans shelved, it is more vital than ever that the government now demonstrates its commitment to stamping out non-compliance and malpractice in our industry,” he said.

“It is shocking that [tax avoidance and disguised remuneration] schemes that lure workers into financial hardship when they can ill afford it are allowed to thrive. The government continues to drag its feet on taking visible enforcement action to find the perpetrators of these schemes and close them down.”

It has also been almost a year since the UK government launched its call for evidence into how the umbrella company sector operates and its findings are still yet to be made public, continued Crawford.

“Quicker action, more resources and investment are needed if we are to clean up an industry that continues to attract negative headlines,” he said.

Rebecca Seeley Harris is a former senior policy adviser to the Office of Tax Simplification, who previously gifted the government a draft policy document to help it expedite the process of regulating umbrella companies.

Speaking to Computer Weekly, she said it was “all very well for Grant Shapps to vaguely mention that the SEB is not going ahead”, but the government needs to give some serious thought about what to do in place of it.

On this point, she said the logical thing to do would be to make the EASI responsible for the umbrella sector, given its remit includes protecting the rights of agency workers. However, the Inspectorate would need extra funding to cover its additional responsibilities and there would be legislative piece to sort there too, she conceded. 

“EASI is really the only government body that can be responsible for the umbrella sector, and if it is going to be tasked with that, EASI would need extra funding,” she said. “That would also depend on the extent of their activities, whether they are there simply to educate or whether they take on a more active function to penalise wrongdoing.

“They would be responsible for both the regulation of the umbrella company and the protection of the worker. This would involve regulation… or amending the Conduct Regulations,” she added.