Contractors are seeing ongoing improvements in the performance of the UK economy as a whole, with more contracts available and a modest rise in rates. The positive economic indicators all come with a health warning: the patient, the UK economy, is none too steady on its feet and a swift shove in the form of ill-thought-through taxes and regulations on business could send it sprawling into relapse. Plus, of course, there are many uncertainties raised by the unpredictable results of the forthcoming general election.
What’s becoming clear from reports, such as BDO’s Industry Watch, is that in many ways this recession has very different characteristics to previous recessions, and that contractors, although experiencing some short-term pain, could emerge much stronger at the other end.
In this month’s ContractorCalculator Market Report:
- The REC/KPMG Report on Jobs reveals that contract positions have increased at the fastest rate in nearly three years, with rates increasing too
- E-skills UK’s quarterly review of the ICT Labour Market confirms what we all suspected; IT contractors are back on the map and back in demand
- All contractors stand to benefit from an improved economy, with indications from the British Chambers of Commerce suggesting the upturn is happening, although a ‘double-dip’ recession remains a threat
- If demand for interim management contractors is anything to go by, the public sector still has cash to spend, as public sector demand outstrips the private sector’s for another quarter
- Business failures have risen by 59% during the recession, but the insolvency rate started falling in 2009, well before the UK was out of recession, according to BDO.
Fastest increase in demand for contractors since January 2008
This month’s Recruitment and Employment Confederation (REC) and KPMG Report on Jobs reveals that contractors have enjoyed the ‘fastest increase in demand for temp staff since January 2008’. Permanent placements rose at the fastest rate in 12 years. And this increase in demand for contractors was matched by a ‘modest’ increase in pay.
Kevin Green, Chief Executive of REC, was full of praise for the contribution contractors make to the economy. “A rise in both temporary and contract work at the sharpest rate for nearly three years shows how they continue to provide vital flexibility for UK businesses as well as a valuable route back into work for job-seekers.”
IT contracting sector ‘back on track’
The latest e-skills Bulletin reveals that the fourth quarter of 2009 put IT contractors well and truly back on the map, as demand grew by 26% on the previous quarter. Confidence in the IT sector is on the increase and the number of IT companies going bust actually fell by 3%.
Demand for IT contractors varies according to discipline and those contractors offering SQL, C, C#, .NET and SQL SVR were in the most demand in the quarter. Over the longer term, contractors working in Bluetooth, Tibco and RDBMS have experienced ongoing increased demand. As ever, contractor rates depend very much on skills and location, as London-based IT contractors tend to earn the most – averaging £900 per week – versus contractors in the North East, averaging £450 per week.
And with more contractors available than contracts, e-skills does not predict the skills shortages we have experienced in pre-recession times to return, which in time could put pressure on rates and contract availability.
UK upturn ‘still on course’, but weak and facing risks
More good news for contractors across all sectors comes from the British Chambers of Commerce (BCC) – its Quarterly Economic Survey for the first three months of 2010 that shows the UK economic recovery is still on course.
Although low compared to pre-recession levels, the survey highlights many positive indicators, including in confidence, outputs and exports. Overall, it paints a shaky but improving picture, and shows that the UK is back in hugely positive territory, certainly when compared with previous quarters during the worst of the recession.
The survey commentary includes a stark warning to the incoming government: it says that to avoid a double dip recession, the new government must ‘immediately produce a more credible medium-term plan for cutting the Budget deficit’.
Cuts, what cuts? Public sector dominates interim sector
The public sector accounted for 55% of interim management contractor assignments in the last three months of 2009, according to the Interim Management Association Ipsos MORI Market Audit – Fourth Quarter 2009.
How long this state of affairs will continue post-election is unknown, as all parties are threatening public sector spending cuts. But interims and other contractors might actually benefit from public sector recruitment freezes, as they are often counted as business suppliers and not as part of the ‘headcount’.
The market audit also highlights that health and local government top the tables for public sector assignments, whereas banking and finance assignments dominate the private sector. The electronic and engineering sectors entered the audit’s rankings again for the first time since the third quarter of 2008, reflecting the improved fortunes of these sectors.
Fewer than expected businesses failing – why?
One in every 74 companies went bust last year and that figure undoubtedly includes many contractor limited companies. The latest statistics on business failures in the UK released in BDO’s latest Industry Watch paint a bleak picture. Over 26,000 businesses failed in 2009, a 16% increase on 2008 and a whopping 59% increase on re-recession levels in 2007.
A government of any colour must recognise that enterprise is the UK's engine room and so any increases in VAT or tax reforms that hinder UK plc's competitive global standing could seriously upset the apple cart
Shay Bannon, BDO
However, this can be seen in a positive light. According to BDO’s Head of Business Restructuring, Shay Bannon, the figures should have been worse. He explains: “….business failures reached their peak in Q1 2009 and since then we’ve seen a downward trend. Historically, business failures are lagging indicators and continue rising well after the economy has turned. So we were surprised to see that business failures rose far less than expectations through this recession, and indeed less sharply than during previous recessions.”
Bannon believes there are a number of factors to explain this anomaly. These include HMRC’s ‘time to pay’ scheme, the falling costs of company financing as interest rates plummeted, and even the widely criticised VAT cut, which is thought to have saved as many as 1000 firms.
But Bannon sends a stark warning to the victors of the forthcoming election: “With the economic recovery sluggish at the best, and the uncertainty the election will certainly create, there is the need for continued support in order to avoid a second wave of business failures.
“A government of any colour must recognise that enterprise is the UK’s engine room and so any increases in VAT or tax reforms that hinder UK plc’s competitive global standing could seriously upset the apple cart.”