Britain's orchestras face bankruptcy over £33m national insurance debt

British orchestras fear financial ruin if they are forced to pay back £33m owed to HM Revenue & Customs (HMRC), a leaked e-mail obtained by the BBC1 Politics Show shows. The orchestras are seeking government intervention to cancel or reduce the debt. The huge deficit arose following changes to the way in which performers pay NI contributions introduced in 1998.

Freelance musicians in orchestras are now treated as employed in terms of national insurance, allowing them to claim the jobseekers' allowance when they are out of work, but for tax purposes they are still treated as self-employed. The new rules meant that orchestras were newly responsible for NI contributions for freelance musicians.

HMRC is now demanding repayment of money it is owed since 2000-01. In addition, orchestras will have to start paying employers' NI contributions totalling £6m a year from April 2006. The Association of British Orchestras (ABO) has warned that HMRC's demands could lead to the collapse of up to 80 per cent of British orchestras.

In an e-mail to the chief executives and finance directors of 55 orchestras, ABO's director Russell Jones warned: "These backdated figures are so vast many orchestras would close and there would be very serious financial implications for others."

His comments followed a meeting on 19 October between officials from HMRC, the ABO and representatives of the Arts Council England, the Musicians Union and the Department of Culture, Media and Sport.

At this meeting, according to Mr Jones, the HMRC recognised that making repayments "if pressed would result in the liquidation of four of the five orchestras assessed".

Mr Jones added: "Everyone present at the meeting reiterated that keeping this issue out of the media as much as possible was very important."

HMRC undertook reviews of five sample orchestras - the London Symphony Orchestra, City of Birmingham Symphony Orchestra, the Orchestra of the Age of Enlightenment, English Touring Opera and Welsh National Opera - which concluded the companies were not deducting NI contributions correctly.

The ABO chairman, Michael Henson, has written to the Culture Secretary, Tessa Jowell, asking her to intercede with the Chancellor and the Paymaster General to avert the potential crisis. Mr Henson added that over the past six years, orchestras had benefited from a one-off Arts Council investment of £35m, which would be cancelled out by the repayments.

In a separate e-mail, Mr Jones urged orchestra finance directors to write to Ms Jowell warning that repayments could lead to insolvency for most chamber orchestras, severe financial difficulties for all symphony, opera and ballet orchestras and a reduction of education and outreach programmes.

HMRC insisted no orchestras would go bust as a consequence of its demands. "We have an excellent track record for agreeing 'time to pay' arrangements with our customers when they need it, ensuring that bankruptcy is rare. Consequently, we do not believe that any orchestras will need to close," an HMRC spokesman said.