Contractors are growing in number, the contracting sector is becoming an ever more important solution to the needs of clients, and the future growth of the UK economy is increasingly dependent on the sector.
Yet despite the evident value that the UK’s flexible workforce adds to the economy, the government appears determined to harass contractors – and even to drive the most badly needed contractors out of the public sector. Why?
To understand this, it’s necessary to remind ourselves of the positive impact contracting is having, through recent reports and studies:
- The most recent Labour Market Statistics from the Office for National Statistics show that self-employment has reached a new record high of 4.2m people; that’s one in seven or 14.3% of the working population.
- Analysis shows that some individuals are choosing self-employment because they cannot secure permanent work, or are working self-employed part-time. However, others are becoming self-employed as a proactive lifestyle choice, suggesting that contracting and freelancing is gaining traction.
- This active choice is borne out by research published earlier in the summer by PCG. Its latest ‘Kingston Report’ shows a healthy and vibrant flexible workforce, which has grown by 12% since 2008 to reach 1.56m.
- PCG’s research also shows that contractors and freelancers now account for 5.2% of the working population. This figure is likely to be understated, as it only identifies 70,000 IT and telecoms contractors, which anecdotal evidence suggests is well below the actual number.
- At the same time, PCG’s research highlights that clients are increasingly turning to contractors and freelancers. A third of end-user clients use contractors on a weekly basis, and 41% plan to use contractors in the coming year.
- The Chartered Institute of Personnel and Development’s (CIPD) Labour Market Outlook Summer 2012 provides data that suggests contractor use could be higher than PCG’s research suggests, even though it includes lower skilled and lower paid flexible workers. CIPD’s data says that 78% of organisations hire temps and contractors, rising to 85% and 86% in the public sector and manufacturing industry respectively.
- Labour market surveys, such as the KPMG Recruitment and Employment Confederation (REC) Report on Jobs, are confirming that organisations are using contractors during uncertain economic times as a low risk alternative to hiring permanent employees.
- And some surveys, such as the Manpower UK Employment Outlook Survey, go as far as to confirm that the flexible workforce is vital for delivering growth: “if we want to pull ourselves out of recession, we’re going to need…the in-demand skills in order to allow start-ups and entrepreneurs to flourish.”
Why, then, has the government apparently declared war on flexible workers? And based on the evidence, ‘war’ is by no means a melodramatic description of the government’s actions and inactions:
- Not only has IR35 not been abolished, as promised by coalition politicians before they joined government, but in May 2012 contractors were subjected to HMRC’s new risk-based approach and the introduction of controversial business entity tests
- The Agency Workers Regulations (AWR) introduced in October 2011 are costing contractors contracts, and new contracts are being shortened as a result of AWR, leading to greater uncertainty and short-termism; the government has chosen not to reverse the previous Labour administration’s ‘gold-plating’ of the rules or review them in any way
- Limited company contractors have come under an unjustified assault and disinformation campaign, being branded as morally repugnant ‘tax avoiders’ by media and politicians
- The government’s new off-payroll rules will drive many contractors out of the public sector; indeed, many contractors may have their contracts terminated unfairly as a result of poorly thought through and muddled policies
- We have ‘controlling persons’ legislation out for consultation, and it is proposed to introduce these new rules that will affect public and private sector interims alike, threatening one of the UK’s fastest growing services exports as interims relocate their contracting businesses overseas.
Even allowing for some overlap between the ONS’s and PCG’s flexible workforce populations, approximately one in six UK workers is not an employee, but works for themselves in some capacity. Should the growth of the flexible workforce continue at current rates, there will be more flexible workers than public sector workers, who currently account for one in five of the working population. Whose needs will take precedence then?
Looking elsewhere, flexible workers now account for 19.1% of Australia’s entire workforce. So far from attacking it, the political establishment is more likely to court contractors, and certainly ignores this constituency at its peril.
Why can’t our political establishment acknowledge that the world of work has moved on in the UK, too, and that flexible workers represent one of the UK’s sources of competitive advantage in the global economy? Why is it that, as the importance of the contracting and freelance sector grows, so do government attempts to regulate it, instead of creating a framework that can truly unleash its potential?
There is still time to educate policymakers on the dangers of alienating flexible knowledge workers by its unceasing attacks on a segment of the workforce it clearly chooses not to understand. Let us hope that the penny drops before contractors are regulated out of the UK marketplace, and take their valuable skills to jurisdictions with more friendly and better informed administrations than that we currently have in the UK.