The powerful House of Commons Public Accounts Committee is preparing to investigate loopholes in the UK’s tax system that, according to its chair, Margaret Hodge, “wouldn’t look out of place in a banana republic.”

Ms Hodge was writing in The Times newspaper, advancing its moral campaign against tax avoidance. Whereas most hardworking contractors who make their livings through umbrella companies or limited companies would not disagree that dodging tax obligations is unacceptable, it may be advisable to maintain a degree of scepticism about the wisdom of this campaign.

Ms Hodge says “thousands of people employed in the public sector are still exploiting a loophole that allows them to lower their tax burden by receiving payment through a company.” Hmm. Thousands of people. This suggests that she is not referring to a small number of wealthy high-earners at the top who may or may not have resorted to questionable measures to lower their tax bills but to smaller fry, such as specialists in IT contracting. The latter may include PAYE umbrella contractors, who certainly cannot be accused of avoiding tax, or to contractors with personal service companies, the vast majority of whom work completely in compliance with HMRC requirements.

The tax abuses by surreally wealthy people referred to by Ms Hodge surely deserve proper investigation and rectification, but if an indiscriminate ‘bash all contractors’ sentiment animates the Public Accounts Committee, serious and unnecessary harm could be inflicted on perfectly honest individuals who are complying fully with the law and paying their dues.

Beware well-meaning politicians with good intentions. There is a certain destination that none of us wish to go to, whose path is paved with the latter.

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