After a stream of inconsistent economic indicators over recent weeks, in this month’s ContractorCalculator market report we can show that business confidence is waning and the Treasury is once again stalking contractors in its bid to fill the mounting hole in its finances.
The jobs market as a whole continues to give hints of cutting back, although that often provides new opportunities for contractors. Of note in recent weeks are the following:
- Barclays Bank followed Barclays Capital in cutting IT contractor rates by 10%
- The Monster Employment Index shows a continued downturn in online recruitment
- A Deloitte survey reports the number of companies going into administration has risen by 16% so far this year, with the figure for smaller IT providers hitting 40%
- Government-funded e-skills, on the other hand, reports on the rapid growth of the IT sector
- Bank of Scotland research signals a drop in confidence among the UK’s small and medium enterprises
- The Treasury releases a new consultation questioning contractor expenses.
Rate cuts for IT contractors
Barclays is now applying rate cuts seen last month at Barclays Capital to the rest of the group. According to Barclays the cuts will bring their rates in line with market rates, following a review of pay across the IT sector.
The new IT contractor rates become effective from 25th August and contractors can expect to suffer an average of 10% reduction in their daily and hourly rates.
IT jobs at Barclays have been under threat as an estimated 1,800 technology jobs will go offshore to India, Singapore and Hungary.
Soft landing for the agencies?
The Monster Employment Index reported a drop in online recruitment for the third time in four months in its latest report. Despite this, according to Hugo Sellert, Head of Economic Research, Monster Worldwide online recruiting is still higher than a year ago: “The availability of jobs online is significantly higher than last year,” explains Sellert, “and demand remains elevated in both manufacturing and parts of the service sector.”
This is partially borne out by Irish recruiter Loadzajobs.ie, which has reported high demand for workers in IT, which could provide short-term opportunities for UK-based contractors escaping the rate squeeze.
The availability of jobs online is significantly higher than last year
Hugo Sellert, Monster Worldwide
The data suggests that the market is currently seeing the rate of growth slowing, rather than shrinkage of demand in real terms. But this hasn’t stopped at least one high-profile casualty so far, with City IT and banking recruitment specialist Greatfleet going into administration at the end of last month.
Business confidence takes a hit
Separate surveys published by the Bank of Scotland and Deloitte show that smaller businesses appear to be bearing the brunt of the downturn so far this year.
Bank of Scotland’s Small Business Confidence Index shows that business confidence in the SME sector has fallen for five quarters in a row, down by a third since May 2007.
According to the report, the sharp fall in confidence and forecasts of flat or negative growth will mean a slow-down in recruitment, as smaller firms are reluctant to take on permanent staff.
We are seeing small, independent IT businesses taking a hit, with administration figures up by 40%
Lee Manning, Deloitte
As in previous recruitment downturns, this may present opportunities for highly skilled and flexible contractors and freelancers to present a lower risk opportunity to stable, but worried, employers.
Deloitte’s quarterly report on firms going into administration in the UK is showing a slight improvement on the beginning of the year, but overall the number of businesses going bust is on the rise.
According to Lee Manning, reorganisation services partner at Deloitte “Unsurprisingly, property and construction have seen the most significant increase in administrations; with the value of land stock declining, house prices and mortgage approvals falling, administrations have risen by over 50% compared to last summer.”
And perhaps of concern to some contractors working through their own limited companies, Manning goes on to say: “We are seeing small, independent IT businesses taking a hit, with administration figures up by 40%.”
The gloomy business outlook is matched by the feelings of the wider population, with a Guardian/ICM survey claiming 80% of people believe the UK is headed for recession.
IT surges ahead of the rest of UK industry
The not-for-profit IT and telecoms skills council, e-Skills, has published four more in-depth reports as part of its IT and Telecoms Insight 2008 series, highlighting the fact that the information and communications technology sector has much to be thanked for by the rest of the UK:
- Sector output has increased every year since 1992, and faster than the economy as a whole
- According to the government’s measurement gross value added, or GVA, IT has performed at 125% from 1992 - 2004 against the rest of the economy’s 91%
- IT and telecoms accounts for nearly 950,000 UK jobs, or 3.2% of the total workforce
- The information and communications technology sector has helped increase productivity in the UK by £35billion.
On the downside, whilst the IT sector creates businesses at a faster rate than other sectors, it also loses businesses at a faster rate than the rest of the economy.
And another major finding of the reports was that skills shortages remain an issue for IT recruiters, although only a small number of employers have reported that they are having difficulty getting the right calibre of worker.
Paradoxically, in the same report it was stated that IT skills do need improving to meet employers’ needs. Investment in certain types of training is essential for contractors to maintain their marketability.
Treasury consultation to affect contractors
In a new consultation, the Treasury has unveiled plans to investigate those contractors who work via contractor umbrella companies and claim travel expenses. If the Treasury’s proposals went ahead, the net pay of contractors would almost certainly take a substantial hit, and force many of them to seek alternative ways to manage their contracting.
At a seminar organised by legal consultancy Lawspeed, contracting industry representatives met to debate the best response to the consultation. Over twenty companies that took part agreed to present a coordinated response to the Treasury and to raise a fighting fund to cover the costs of the research required by any likely response.
This group will represent a significant number of the estimated 100,000 contractors who work through umbrella companies.