Following a Pre-Budget Report that bordered on the positive, contractors are now facing a real economy where the recession is starting to impact directly on their client sectors and their earnings. However, opportunities are available for those contractors willing to take a risk and/or consider contracting overseas.
In this month’s ContractorCalculator Market Report:
- Income shifting proposals and umbrella company expenses get reprieve from chancellor in Pre-Budget Report
- Business failures are forecast to peak at the highest levels since 1992, with construction hardest hit
- A surprise surge in the Monster Employment Index takes the index back to 1% higher than year-earlier levels
- Mixed fortunes for contractors in IT and engineering with some roles still in great demand, but others plummeting
- A new ‘brain drain’ may present opportunities for contractors as skilled workers pack their bags and set-off for ex-pat lifestyles.
Contractors gain reprieve in Pre-Budget Report
With the backdrop of a faltering economy and global financial melt-down, the Chancellor Alastair Darling chose to be lenient with contractors by postponing the income shifting proposals and taking no action over tax relief for umbrella company travel expenses.
This is great news for both limited company and umbrella company contractors, with both groups facing serious threats to their income had the Treasury decided to take action.
However the good news about continuing tax relief for travel expenses for contractors working through umbrella companies had a sting in its tail – the wording in the Pre-Budget Report made it clear that the contracting sector is on probation and that, without significant self-policing by the industry, the Treasury will take action.
The ‘real economy’ is starting to bite
BDO Stoy Hayward’s latest Industry Watch report makes for grim reading this month. The report by one of the UK’s leading accountants and business advisors forecasts that business failures will continue to rise into 2010, when they will peak at 32,400, a total not seen since 1992.
It is inevitable that contractors will form part of the casualty roll. Of even greater concern is that construction firms are forecast to suffer the most this year, with 6,400 going to the wall.
However, according to Shay Bannon, Head of Business Restructuring at BDO Stoy Hayward, it’s not all doom and gloom: “Despite the pessimistic outlook in the short term, the UK economy is in a better position in this stage than in recessions seen before. Low interest rates and inflation give the UK strong economic foundations for recovery.”
Despite the pessimistic outlook in the short term, the UK economy is in a better position in this stage than in recessions seen before
Shay Bannon, BDO Stoy Hayward
Surprise hike in the Monster Employment Index
Following a consistent four month decline to the lowest level since the index began, the Monster Employment Index has bounced back to show online job availability at 1% higher than the same period last year.
Contractors in the education and healthcare sectors will have benefited most from this increase, with moderate improvements in the financial and engineering sectors.
Once again, though, construction has taken a hammering, with major declines in public sector and defence contracts and a small decline in IT and telecoms showing flat demand.
Still no consistency in IT contractor demand
Not only is contractor demand fluctuating from sector to sector, but there are also sharp differences in demand for particular roles within each sector, with no clear pattern emerging.
In the IT sector, the latest IT Job Board’s skills in demand survey findings are:
- Figures show an overall decrease (month-on-month) in jobs across the IT sector for the last six months
- IT manager and IT support roles continue to represent the highest number of jobs advertised on the site
- In the last quarter (September-November 2008), the following roles have decreased less significantly: Java, networking, Oracle, engineering, ERP and UNIX
- Project manager roles witnessed an increase of 31.5% during September 2008.
Alex Farrell, managing director of theitjobboard.co.uk, said: “In the wake of the credit crunch, it is not surprising to see that the number of IT jobs advertised has decreased. However, across a wide range of sectors, these falls have not been hugely significant.”
In the wake of the credit crunch, it is not surprising to see that the number of IT jobs advertised has decreased. However, across a wide range of sectors, these falls have not been hugely significant
Alex Farrell, theitjobboard.co.uk
Engineering highs and lows
A similar pattern emerges in the engineering sector. Some areas, such as oil and gas, are still buoyant, but others are in sharp decline and likely to stay that way for at least 12 months, according to Giant Group and the Engineering Employers Federation (EEF) business trends survey and economic forecast for 2009.
“Manufacturers have made substantial progress in recent years in improving their performance,” commented EEF Chief Economist Steve Radley on the results of the survey, which forecasts the loss of 100,000 engineering jobs, “but the next twelve months are set to be some of the most difficult in two decades.”
The research conducted by contractor umbrella company Giant Group shows a 38% increase in the number of engineering contractors without work, but 66% of contractors surveyed still expect their rates to increase in the next 12 months.
Ex-pat lifestyle beckons for many contractors
Research by recruitment consultancy Harvey Nash shows the beginning of a ‘brain drain’ of highly skilled workers from the UK to the emerging markets of the Middle East and Latin America.
The research suggests that a combination of high living costs and fewer UK -based opportunities are making the choice much more straightforward, as Harvey Nash CEO Albert Ellis explains: “Whereas before [persuading someone to relocate] would have been fraught with problems and difficulties, because of the job market as it is now, people are seriously considering emerging economies and different markets.”
Many contractors are already familiar with the benefits of contracting overseas, and the likelihood is that demand for contractors in the UK will increase as firms losing top talent seek to fill the gaps on an interim basis.