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Public sector losing talent in droves post IR35 tax reforms

Dave Chaplin

The public sector has been decimated following the controversial IR35 tax reforms that came into effect earlier this year. 76 percent of departments have lost highly skilled contractors and 71 percent of projects have been delayed or cancelled. Comment Dave Chaplin, CEO and founder of ContractorCalculator.

These are just two of the findings of a survey of more than 1500 contractors conducted by leading contracting site ContractorCalculator. It has been four months since the public sector changes were implemented and the survey results reveal the impact:

  • 27 percent of public sector contractors left the public sector
  • 47 percent of projects lost at least a quarter of their contractors
  • 61 percent of contractors left because they refused to work under IR35 rules
    52 percent of contractors who left the public sector are yet to be replaced
  • 50 percent of contractors have said they will now never work in the public sector if caught by IR35
  • 46 percent will only do so if the Government effectively pays the extra tax

Commenting on the fallout and the alarming results of the survey, Dave Chaplin, CEO and founder of ContractorCalculator said: “These findings should be a wakeup call to Government and serve as a prompt to repeal the entire legislation.  HMRC was warned that this would happen and now we have the evidence that shows just how damaging the changes have been – diminished access to the flexible workforce has caused irreperable damage to multiple vital public services, projects have been cancelled and others are running over budget by millions of pounds.

“What’s more, we expect that HMRC is planning to roll out the reforms in the private sector which just goes to show how far removed from reality the taxman is.   Action is needed to prevent further decimation of our public sector services and stop a private sector roll out which will cause further chaos for contractors, businesses and the UK economy overall.”

25 percent of NHS departments have lost 50 percent or more of their flexible workforce. The changes have exacerbated an already acute skills shortage in the NHS with the survey revealing that 25 percent of NHS departments have lost at least half of their flexible workforce.  Other findings showed:

  • 63 percent of NHS contractors are considering changing career
  • 40 percent say they may quit contracting altogether
  • Just 22 percent of contractors who remain in the NHS can work outside IR35

Added Chaplin: “Due to the pay caps in place in the NHS, many locum doctors and nurses can’t charge increased rates to compensate for loss of earnings and few NHS departments are willing to offer outside IR35 contractors.  The effect on morale in the health sector is evident and survey respondents reported the catastrophic impact the changes are having.  Unless swift and urgent action is taken, it looks as if an already acute problem of personnel shortage will just get worse.

“Further anecdotal evidence tells us that operations are being cancelled, cancer waiting times are being extended and patients with mental health conditions are being left without support due to staff shortages.  Many contractors in the health sector are being paid too little and taxed too much.  HMRC has a lot to answer for.”

79 percent of IT projects delayed due to IR35 reforms. For IT contractors, 79 percent cited that that their IT projects suffered delays as departments couldn’t draft in replacements and 37 percent of IT contractors abandoned the public sector in the wake of the reforms.

Commenting on the impact of IR35 on IT projects, Chaplin said: “With Brexit and other challenges right around the corner, HMRC has chosen to shoot the public sector’s IT capability in both feet by sparking a contractor exodus. IT contractors are in very high demand, could not be forced into false employment, so voted with their feet.”

Public sector blackballed by 39 percent of contractors
39 percent of contractors are considering changing career altogether with 17 percent considering to quit contracting as a result of the reforms.  In addition, 50 percent of contractors will never work in the public sector if caught by IR35 & 46 percent will only do so if the Government effectively pays the extra tax.  A fifth of contractors have ruled out the public sector entirely as a place to work.

Chaplin Concluded: “Contractors are turning their backs on the public sector and Government projects are in dire straits.  However, IT is not the only resource the public sector is starved of, the NHS is also struggling.  It’s a shambles which has cost our public services dearly to the tune of millions of pounds.  We cannot underestimate the impact of the changes on public healthcare nor the aggravating effect the changes have had on departments in need of project managers.”

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