IR35 – what happened in the public sector

In 2018 a report by the IPSE (Independent Professionals and the Self Employed) and CIPD (Chartered Institute of Personnel and Development) found that the changes to IR35 have led to public sector organisations struggling to attract and retain talented contractors.  

The figures released show that over half (51%) of managers who hired in the public sector had lost contractors as a direct result of the change.  A staggering 71% stated that they were facing real challenges in their retention of contractors.

By the time the change in IR35 legislation comes into force in the private sector in April 2020, it will have already been in operation in the public sector for 3 years.

Charles Cotton is a senior performance and reward adviser at the CIPD.  He has concluded that the change in IR35 has caused “damaging unintended consequences” for the public sector.  “HR professionals have said they are finding it harder to recruit and retain skilled contractors, which is contributing to project cost rises, projects being delayed, and, in some cases, projects even being cancelled.”

These findings, according to Chris Bryce, CEO of IPSE chief executive, said the findings were a “resounding retort” to what he called HM Revenue and Customs’ (HMRC) “deeply flawed” research on the tax changes’ impact on the public sector.

“[Our findings] confirm what we have been hearing anecdotally for a long time – these changes just have not worked,” Bryce continued. “In fact, they’ve caused serious damage right across the public sector, stalling major [Transport for London] projects and even contributing to the NHS staffing crisis.”

Bryce added it would be “nothing short of a disaster” if the government went ahead with its proposals to extend IR35 changes to the private sector. Chancellor Philip Hammond revealed he was thinking about rolling out the changes to the private sector in last year’s Autumn Budget and the consultation into the issue was launched last month. The consultation runs until 10 August.

The CIPD and IPSE study, which surveyed 867 contractors and 115 managers, also found the changes might have increased the administrative burden across the public sector. Four out of five (80 per cent) hiring managers said they had seen a rise in workload involved in engaging and paying contractors.

But a HMRC spokesperson told People Management the survey results were “not consistent” with the government’s understanding of the impact of IR35 reform. A study carried out by IFF Research on behalf of the taxman, published last month, concluded the amendments had led to “minimal impact on how public bodies recruit”.

Meanwhile, a report released earlier this week by the Recruitment and Employment Confederation (REC) discovered half (50 per cent) of UK employers were now struggling to find permanent hires – up 8 percentage points compared with this time last year.

The research also showed two-thirds (66 per cent) of employers who recruited temporary workers were concerned about candidate availability too.

Tom Hadley, director of policy at REC, said a lack of suitable candidates is “one of the biggest challenges facing the UK jobs market”.

“With skills need and candidate expectations continuing to evolve, employers are having to innovate to attract the right people, particularly when competition between businesses for candidates is intensifying,” he said. “The government can help by ensuring the future UK workplace has the skills needed and put in place to a balanced and evidence-based immigration system post-Brexit.”