Contractors may benefit from today’s Spending Review as Chancellor George Osborne has announced ongoing investment into infrastructure, engineering and renewables. This follows yesterday’s defence spending review, which has maintained spend on many contractor-intensive capital projects.
However, the positive news is tempered by massive cuts in public sector employment and spending. In addition, HMRC has been awarded a £900m fund to tackle ‘fraud and evasion’, which could signal a renewed assault on contractors’ and their tax affairs.
IT contractors supporting the UK’s financial services sector may come under some pressure, as the Chancellor announced a permanent levy on the UK banking sector. He said this: “will raise more net each year and every year for the Exchequer than the one-year bonus tax did last year.” An estimated 30% of IT contractors in the UK work in the financial services sector, so a permanent levy could not only lead to a reduction in contracting ‘headcount’, but could also be seen by some banks as a reason to relocate from the UK.
In a further blow to IT contracting, HMRC is now required to cut its budget by 15%, mostly through reductions and efficiencies in IT spend. This move could prove counter-productive, though, as recent large-scale errors have shown just how important it is for HMRC to invest in a sound IT infrastructure.
There is good news for non-financial IT contractors, engineers, construction contractors and interims. Those contractors working in the transport and infrastructure, renewables, nuclear, civil engineering and offshore sectors, including offshore wind, are set to benefit from projects worth over £30bn over the next five years.
Unsurprisingly, in view of the tone set by the government in recent weeks, the Chancellor has cut public sector spending across the board. This will result in an estimated 490,000 public sector job losses by 2015. The axe has fallen less severely in some areas than expected, and the loss in permanent posts through recruitment freezes will almost certainly generate contract and interim opportunities.
Chancellor Osborne did not use his speech to announce any tax changes directly impacting on contractors, although the benefits and tax credits system will undergo major upheaval that have the potential to negatively effect some contractors.