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Everyone’s Contract rates will wobble as Public Sector IR35 legislation looms

85% of public sector contractors will leave their posts if hit by HMRC’s IR35 tax avoidance legislation that comes into force in the public sector from next month, according to tax advisor Qdos Contractor.

While most commentators are concentrating on the impact on Public Sector IT programmes, we predict a ripple effect on private sector contract rates as competition for these roles increase.

Here are a couple of real examples

  • Last week a contractor of ours who was engaged on a contract, working on a Local Govn’t digitisation programme. They called in to trigger their 1 weeks’ notice and were off to work for a distribution firm, 30 miles further away from home on the same day rate. Their words not mine “I’ve decided to beat the rush.”
  • I spoke to a contractor this morning who is working on a contract at Department of Work and Pensions (DWP) on £600 per day, voting with their feet, refusing to accept an extension from DWP and applying for a £500 per day contract, first question they asked was “Is it in the Private sector?”   The individual did not want to talk about the fact they were applying for a senior developer role when they were currently an Applications Architect, or the £100/day rate reduction. It just kept coming back to the impact of IR35 and “I need to get out quick – put me forward.”

So all the evidence is suggesting more contractors will be applying for the finite number of Private Sector contracts available.

Some agencies will capitalise on this scenario and play contractors off against each other as a way of increasing their margins by charging the clients the same and paying less.  More switched on clients will start to offer lower day rate budgets to test the elasticity in the market; can they get the same for less?   Either way the average contractor day rates will suffer.

While no one will lose sleep about the odd contractor taking a pay cut, yet wouldn’t it be ironic if the HMRC IT systems fail as a result of the flexible workforce walking out.

Qdos’s survey of 2,000 UK contractors found that 95% believe public sector projects will suffer as a result of contractors downing tools and leaving, because of the reliance on outsourced skills. That would put projects like the NHS’s Windows XP mass migration at risk, as well as major IT projects in various Whitehall departments.

I do personally fear for the impact on certain public sector IT programmes.   A quarter of those surveyed fear for the NHS’s future without contractors.

(Yes you did read that correctly, 9 out of every 10 NHS trusts still use XP… Only two and a half years since Microsoft stopped supporting it)

Steve Moran