Report finds IR35 has caused “serious damage” in the public sector

New research has shown that public sector organisations have been struggling to attract and retain talented contractors in the wake of last year’s changes to IR35.

The study, carried out by the CIPD (the professional body for HR and personal development) and IPSE, was based on responses from 867 contractors and 115 hiring managers in the public sector, mostly from NHS Trusts.

Key findings

The research revealed some damning findings into the effects of the IR35 reforms in the public sector.

Problems hiring and retaining contractors

• 51% of hiring managers reported that they had lost skilled contractors as a direct result of the changes
• 75% said it is now harder to recruit contractors
• 71% said they were finding it difficult to hold on to valued contractors

Project delays and rising costs

• 40% of contractors questioned said they had seen project delays and rising costs since the changes were introduced
• 52% of hiring managers said they had experienced cost rises along with project delays and cancellations

Increased admin

• 80% of hiring managers said there has been a substantial increase in the administration involved in engaging and paying contractors

Impact of an extension to the private sector

Chancellor Philip Hammond revealed in last year’s Autumn Budget that he was considering a roll out of the public sector IR35 reforms to the private sector. The consultation into the issue opened last month and will run until 10th August, amid much speculation that it’s a done deal.

IPSE’s CEO Chris Bryce reflected on the findings of their report and warned that an extension of the IR35 rules to the private sector could be catastrophic.
He commented:

“These figures confirm what we have been hearing anecdotally for a long time: these changes just have not worked. In fact they’ve caused serious damage right across the public sector, stalling major TfL projects and even contributing to the NHS staffing crisis.”

“But the public sector is only a fraction of the size of the private sector. If the government, against all reason, goes ahead with its plan to extend the changes to IR35 there, the consequences will be far worse. It would be nothing short of a disaster. For the good of the self-employed, for the good of businesses across the UK, and for the good of the economy, the government must take heed and reverse these dangerous, reckless plans.”

Research should inform government decisions

It is Liquid Friday’s view that the government should sit up and take notice of the findings of the CIPD/ IPSE research:

Operations Manager Joe Taffurelli explains:

“As IR35 reform in the private sector looms into view it is important for the government to review this research and take action. Genuinely self-employed contractors who choose to operate via a private limited company are going to be unfairly treated and most likely forced into ‘false-employment’ relationships if lessons are not learnt.”

“To maintain economic growth at a time of national uncertainty, due to Brexit, the government need to make informed and wise decisions. Research like this should be considered before taking any further movements towards private sector IR35 reform.”

Update: Joe attended the FCSA members meeting on 2nd July, with HMRC in attendance to discuss the IR35 consultation.  During Q&A it came out that the Treasury has collected double what they expected from IR35 public sector reforms. However when pressed about whether that means some people have been falsely deemed caught by IR35 and therefore over-taxed, HMRC were unable to answer that question. It also became apparent that they have not costed out or calculated the potential tax revenue of any alternative to a full out roll of the public sector reforms to the private sector. This, in itself, is a strong indication that the private sector consultation is an arbitrary exercise.

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