Research from APSCo has found that public sector organisations are shouldering the costs of recent changes to legislation around ‘Off-Payroll’ working. A recent survey of the trade association’s membership of professional recruitment consultancies found that 45 per cent have witnessed the costs of resourcing contractors increasing since the new rules were introduced. Of these, 46 per cent reported that rate rises were in excess of 15 per cent.
As well as increasing spend, public sector organisations are also having to contend with shrinking talent pools, with the majority (70 per cent) of respondents reporting that contract numbers in the public sector have decreased since April 2017.
In April 2016, more than 50 per cent of APSCo respondents said that over 75 per cent of their public sector contractors were working through their own PSC. By August 2017, this figure had dropped to 20 per cent.
When asked about their perceptions of how public sector organisations are managing changes, over half (51 per cent) said that clients have not got access to the tools and expertise necessary to make the correct determination, while 43 per cent said that, in their opinion, the HMRC employment status tool does not generally produce reasonable status decisions.
A robust 78 per cent of respondents agreed that the extension of the IR35 Off Payroll rules to the private sector will impact the ability of the UK economy to source flexible labour.
“As we feared, it seems that these changes have had an adverse effect on the supply of contractors to the public sector,” said Samantha Hurley, director of operations at APSCo. “The increase in rates which has been noted can be attributed to two factors: the scarcity of resource created by candidates moving into the private sector and the market adjusting by passing on additional tax and NI costs to the public sector client.”
She continued: “As APSCo warned, it would appear that HMRC’s calculations of anticipated savings, which didn’t take into account additional expense to the public sector, will be over ambitious. There are fewer contractors now being supplied through PSCs and there is an obvious consensus on the increase of use of umbrella employed contractors, with 82 per cent recording a rise. This is a trend our members anticipate to be ongoing.”
When considering the projection that HMRC will take the Off Payroll rules into the private sector Hurley says APSCo believes that this will have an adverse impact on the strength of the UK’s labour market and wider economy.
“The rise of professional contracting delivers multiple benefits to the UK economy through a highly productive and skilled labour force available on demand,” she said. “Introducing the Off Payroll rules into the private sector without a full understanding of the market and the impact that an increase in costs will have on private sector productivity could have a devastating effect on UK competitiveness.”