Cutting reliance on contractors in the construction industry is the “last thing” the economy needs

The Department for Business, Energy and Industrial Strategy’s (BEIS) Deputy Director of Construction, Fergus Harradence, has been criticised by self-employment experts after saying the government would like to encourage more direct employment in the construction sector. 

Speaking at an online Westminster Business Forum conference last week, Harradence said: 

“We are currently looking at how we can use some of the mechanisms that are under our control to encourage higher levels of direct employment in relation to the delivery of government projects, building on successful examples of things like the Olympic Development Authority.

“I would say that this is going to be one of our objectives over the next few years; we will want to see more people directly employed.”

Construction sector facing ‘skills crisis’

He claimed that the current model has created a skills barrier and said there is “correlation between direct employment and greater investment in skills” as well as better management of the “health, safety and wellbeing of the workforce.”

Harradence’s comments come after the Institute of Fiscal Studies published a report calling for controversial reforms to the way the self-employed are taxed, last month. It said that the current tax system “discourages employment, investment and risk-taking.”

The discussion of the move away from the contractor model so familiar with the construction sector comes just weeks before IR35 reform is introduced to the private sector. Experts have often warned that the changes to the off-payroll tax rules could make self-employment less attractive in the construction industry.

However, ECA director of legal and business Rob Driscoll previously told Construction News that the tax changes could help shift the industry towards more direct employment and this should be welcomed given the “exacerbated skills crisis.”

Direct employment will increase costs ‘significantly’

But industry experts disagree and are concerned that discouraging people not to become self-employed could hinder growth for both the sector and the economy.

Liz Barclay, BackinBusiness.org.uk CEO, said: “On the one hand, this move could see the construction sector go back to how it used to be. On the other hand, the industry works differently now, operating on a project basis with flexible labour, bringing in the specialist skills as and when they are needed. 

“My concern is that in order for businesses to directly employ construction workers, they would need to have several contracts on the go at the same time or the costs could be pushed up significantly. 

“While bigger organisations may be able to absorb the costs of putting people on payroll, many smaller firms couldn’t afford, for example, to have a bricklayer waiting around for the foundation to be dug, which puts both the small business and self-employed at risk.”

Self-employed vital to ‘jumpstarting’ economy 

Andy Chamberlain, Director of Policy at IPSE, agreed and said: “This year the self-employed sector faces threats on all sides: not only the ongoing financial damage of the pandemic, but also the changes to IR35 and the possibility of punishing tax rises. The government now actively discouraging self-employment is the last thing the sector – and the economy – need right now.

“Instead of trying to push people into employment against their will, government should work to improve self-employment and ensure that people who want to work in this way receive adequate support and training.

“Self-employment has historically always been the dynamo of economic recovery: the first sector to kickstart the economy after a downturn. For self-employment to perform this role though – and jumpstart industries from construction to finance – it needs support and stimulus from government, not discouragement at every turn.”