What can contractors expect from Philip Hammond? While his predecessor triggered a wave of change for public sector contractors following the 2016 Budget, what do we know about our new chancellor of the exchequer, and his stance regarding IR35 and the contracting industry?
MP for Runnymede and Weybridge since 1987, Philip Hammond has been a key figure in the history of IR35, the key legislation in the war against ‘disguised employment’, designed to stop contractors effectively working as permanent employees while enjoying the tax benefits of their limited company status.
Hammond took over the second most important position in government on 13 July following a cabinet reshuffle by new prime minister, Theresa May. Although a Eurosceptic, Hammond was in the ‘Remain’ camp and will now lead the negotiations post-Brexit to strike the best deal for British businesses and the EU.
As such, he will have a key role to play in the struggle to ensure UK contractors can continue to have access to roles in the EU. This could be an important concession that many contractors will be watching carefully, but even more important may be his record on IR35.
2007: less red tape for contractors
He served twice as shadow chief secretary to HM Treasury (May-December 2005 and July 2007-May 2010). It was early during this second stint that the Conservatives’ Economic Competitiveness Policy Group had put forward the proposal to abolish IR35 and the managed service company (MSC) legislation so as to cut unnecessary red tape for the contracting industry. Oliver Letwin, then shadow chancellor, had actually commenced proceedings to get rid of IR35 back in January 2005.
Yet there was a complete volte-face and – to the disappointment of most contractors and many businesses in the sector – IR35 was to remain largely untouched. While still shadow Work and Pensions secretary, Hammond had intimated that the laws for Managed Service Companies (MSCs) needed to be reviewed. A month later and contractors became liable for MSC debts.
2016: more rules for public sector contracting
Fast forward to 2016 and public sector contractors working through Personal Service Companies (PSCs) or limited companies could face severe new rules if HM Revenue & Customs (HMRC) recommendations come into force from April 2017.
The consultation document ‘Off-payroll working in the public sector – reform of the intermediaries legislation’ was released shortly after the announcements made in Osborne’s 2016 budget statement. The consultation period ends on 18 August, so there’s still time for you to let us know your thoughts and help us draft our response to HMRC.
There may be a small ray of hope for those who are likely to suffer as a result of these latest developments. The last mentions of IR35 being abolished came under Hammond’s watch as shadow Treasury secretary in 2007, and he may not be an enthusiast for it now.
However, given his new challenging role at the heart of EU negotiations, it’s unlikely the subject of contractor legislation will be quite as high up his agenda this time round.
I think post-Brexit, contracting will change significantly, and I dont think to the good. Many UK contractors now in Europe will probably come back if the deal is not as good as the current conditions. This will mean the market will be saturated and supply might outgrow demand. Day rates will go down. But an argument could be made that many EU nationals currently contracting here will go the other way thus neutralizing this point.
In post-Brexit UK the job market, once free flowing between us and the mainland, will tighten initially. This is because while the long term outlook might be good, the short term is uncertain. This will lead to less and less roles and certainly less contracts. I suspect, we will go through a few years of low to average day rates and struggling to hold on to contracts for long periods. This will go on until the market is confident again and corporations know where they stand. The major thing is whether we can continue to work freely with Europe. Let’s face it, most major projects in the UK, particularly in London, are because global corporations want us to be HQ for their EU/MENA operations. With this under threat, a whole major chunk of work will vanish. It could improve on the long term though.
With an estimated 500 Brexit-specific IT projects already identified in the public sector, anything that interferes with the access to highly-skilled contractors is likely to be seen as unwelcome.
On top of Brexit is GDPR (General Data Protection Regulations) due to go ‘live’ in May 2018. This will see the private sector hoovering-up as many contractors as it can in a frenzied craze (no-one fancies losing 10% of the pre-tax earnings to a fine for a data breach). The public sector would have had to compete for contractors with the private sector to address both Brexit projects and GDPR in any case. Now the task is even harder for the public sector.
Hammond has hobbled the public sectors ability to retain and secure sufficient resources for Brexit projects.
I suspect in months-to-come, in Cabinet meetings, The Treasury (that is, Hammond himself) will be blamed for any delays in Brexit-specific projects.
Indeed I predict that The Treasury (and HMRC) will become the universal fall-guy for any Brexit issues, as other Ministers and senior civil servants try to justify any delays or shortfalls in their projects by referencing the inability of their Departments to secure suitable contractor staff for their deliverables..That will likely happen even when that excuse is irrelevant, but it will be a convenient stick used to beat The Treasury/HMRC with.
One clue that Hammond is being blamed will be a deluge of contract project roles being advertised by the public sector when Ministers will know they won’t be able to attract candidates, and actually didn’t even need the roles filling in any case. But those spurious adverts will be used as ‘proof’ that it’s The Treasury/HMRC’s fault for any project delays.
April 2017 will likely see a re-think by The Treasury, trying to say their proposals were ‘misunderstood’. But it will be too late by then; the exodus of skilled contractors from the public sector will have been firmly identified as being Hammond’s fault, and those contractors won’t be coming back unless a new Chancellor pleads with them.
It would be hard to imagine a dafter, no, outright stupid measure being implemented at a wholly inappropriate moment-in-time The Treasury and HMRC were warned well-in-advance by numerous industry bodies and think-tanks, and having ignored them must now suffer the consequences of an ill-thought-out policy.
As a nurse who works as a limited company , it’s really sad as they seem to take on normal working class people . I don’t get sick pay , maternity , holidays , all the benefit a permanent member of staff gets , yet the little we have they want to take it away from us. This is heartbreaking for me and my family , as I have a young family , the reason I decided to be locum was to be able to work around my kids when I want to . What is this country turning into . When big names like Apple and co fall short in paying their taxes , why can’t they go after those people , am sure they must be getting back handers.