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ContractorCalculator Market Report September 2016

The outlook for the contract sector continues to exceed expectations following Britain’s shock decision to leave the EU, with firms continuing to favour contingent hires over permanent placements. Contractor prospects could further benefit from fears of an exodus of skilled migrants and the slashing of permanent headcounts in the public sector, as flagged up in this month’s round-up of labour market reports. However, proposed IR35 reforms within the sector still pose a very real danger, the potential damage having been highlighted in two separate studies.

In this month’s ContractorCalculator Market Report:

  • Clients continue to look to contingent staff to lead the economic recovery following Brexit, shows the Recruitment and Employment Confederation’s Report on Jobs for July 2016.
  • Reluctance amongst firms to make permanent hires could play into the hands of contractors in the capital, according to the August London Employment Monitor from Morgan McKinley.
  • Anticipated problems caused by public sector redundancies could benefit contractor demand, suggests the REC’s JobsOutlook for August 2016.
  • The latest Labour Market Outlook from the Chartered Institute of Professional Development (CIPD) points towards a potential Brexit-induced migrant exodus as a source of rising contractor demand.
  • Separate reports from the REC and the Association of Independent Professionals and the Self Employed (IPSE) underline the damaging impact of proposed public sector IR35 reforms on the flexible workforce and clients.

Contractors called to lead post-Brexit recovery as permanent placements suffer

If you’re a contractor, now is a good time to capitalise on favourable market conditions after uncertainty amongst firms following the EU referendum outcome saw permanent placements fall in July to a level not seen since the 2008/09 recession.

In highlighting the fallout caused by volatile market conditions, the latest Report on Jobs from the Recruitment and Employment Confederation (REC) reinforces the importance of the flexible workforce, which could once again prove vital in ensuring a swift rebound for the UK labour market.

“Contractors may feel a sense of déjà vu here,” comments ContractorCalculator CEO Dave Chaplin. “Though the UK isn’t in the dire straits it was in 2008/09, the early indications are that, once again, industry is depending on the flexible workforce to lead its recovery.”

Whilst permanent billings plummeted, contingent placements continued to rise, as did contractor pay rates. This points towards a sustained upturn in fortunes which will likely be supplemented by the ongoing talent shortfall, as REC chief executive Kevin Green highlights:

“The record-high employment rate and ongoing skills shortages have made it difficult for employers to find suitable candidates in the past, and this remains the case.”

Contractors could benefit as clients exercise caution

Opportunities could arise for you if you’re a finance and IT contractor in the capital as a result of the UK’s post-Brexit fallout, with uncertainty causing many clients to be more cautious about hiring.

Morgan McKinley’s London Employment Monitor for August 2016 typifies the impact that the post-Brexit trauma is having on firms, with notable figures including:

  • 12% month-on-month reduction in demand for professionals
  • 27% drop in vacancies compared with July 2015
  • 14% month-on-month reduction in jobseekers

Whilst the market may not appear too promising on face value, the volatile conditions and depleted competition could play into the hands of contractors. With many firms reluctant to commit to permanent hires, contingent staff are urged to scope out opportunities.

Despite the disappointing results, Morgan McKinley Financial Services operations director Hakan Enver believes the sector can expect improved figures next time around, attributing a portion of July’s outcome to a summer lull:

“We’re seeing the usual seasonal factors playing out as people take their summer holidays causing a lull in the marketplace. We would expect a bump in the September figures.”

Public sector panic augments improving contractor prospects

Contractors in search of work are being encouraged to target the public sector after the REC issued a warning that cost-cutting measures implemented by public sector organisations aren’t sustainable.

In its latest JobsOutlook survey, the REC notes that 24% of public sector organisations have made cuts to their permanent workforce over the past twelve months. However, as REC chief executive Kevin Green notes, the adverse effects of shrinking headcounts will soon be felt:

“Public sector organisations have been under pressure to reduce costs for some time, and with the easy savings having already been made we’re now seeing some redundancies. It’s likely that this will feed through into poorer levels of service. This situation doesn’t seem sustainable in the long term.”

Contractors are advised to look out for rising demand from the public sector as it seeks to maintain levels of service whilst minimising overheads, with opportunities potentially arising prior to the proposed implementation of public sector IR35 reforms next April.

Concerns over migrant exodus could benefit flexible workforce

The UK’s contingent workforce could be braced for a sharp rise in demand with clients fearing an exodus of skilled migrants from the labour market as a result of the EU referendum.

This is according to the Labour Market Outlook: Summer 2016 from the Chartered Institute of Professional Development (CIPD) and Adecco Group UK, which highlights increasing concern amongst firms over worsening skills shortages. Most notably:

  • 62% of firms reported that they currently hire some EU migrants
  • One in five fear that their migrant workforce are considering leaving the UK over the next twelve months
  • Two in five believe Brexit will make it more difficult to recruit EU migrants

The talent shortfall is likely to be further compounded by the caution demonstrated by clients. The report shows that, following Brexit, a negative balance of -14% of firms expect to increase investment in training and skills development.

This comes in spite of the warning from CIPD acting chief economist Ian Brinkley that firms should be proactively looking to invest: “Instead of looking at cuts, now is the time to be talking about investment in people and in processes and equipment that will improve the resilience of businesses and our economy.”

Whilst bad news for UK business, this suggests that if you’re a contractor who is willing to continue to upskill, you will be able to take advantage of increasingly acute skills shortages in the labour market.

Public sector IR35 reforms place contractor prospects at risk

Plans to reform IR35 in the public sector have been met with further opposition as surveys from both sides of the spectrum illustrate the severe damage they would have on contractor prospects. If you’re a contractor, you need to raise awareness of the proposals that are set to result in a mass abandonment of contingent staff from the sector.

A recent survey from the Association of Independent Professionals and the Self Employed (IPSE) found that 31% of contractors wouldn’t continue to work in the public sector at all if the changes were introduced, whilst 23% would terminate their contract if deemed to be within IR35.

There is also grave concern from public sector organisations, 43% of whom believe the changes would mean fewer contractors would want to engage with them if the proposals go ahead.

This is according to a survey carried out by the REC which also reveals that 26% claim they would have to restrict their use of contingent workers as a result of rising costs of engagement.

“The damage this will have on public services and the flexible economy is too great to ignore,” stresses IPSE chief executive Chris Bryce. “It is a potentially disastrous step, it is unfair and will be challenged.”

Published: 06 September 2016

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