With the European Union (EU) referendum only weeks away, many contractors are still unsure about how to vote. ContractorCalculator was exclusively invited to a UK200Group event where experts gathered to discuss the likely impact of a Brexit on UK contractors and small businesses as part of its ‘Campaign for Clarity’.
“The difficulty about this referendum is all the confusion about the facts, the inconsistent results and the ambiguity, and that’s why this Campaign for Clarity is so important,” highlights UK200Group president and regular ContractorCalculator contributor James Abbott.
Abbott was joined on the UK200Group media briefing panel by experts in tax, law and finance, who addressed questions posed by UK200Group members from campaign groups Britain Stronger in Europe (BSIE) and Vote Leave. The discussion was chaired by leading British futurologist and author Dr James Bellini.
In part one of our EU referendum coverage, ContractorCalculator considers the impact a Brexit might have on contractors with regards to skills shortages and free movement of labour.
Remain: free movement of labour eases severity of talent shortfall
“With almost any businessperson you talk to, one of the complaints you will most often hear is that they can’t get good people,” notes Abbott. “You hear it again and again.”
This has been one of the main arguments addressed to the leave campaign, that a vote to leave the EU would intensify already existing skills shortages.
Firms in sectors such as IT rely heavily on drafting in talent from Europe to help bridge the gap between supply and demand. This is largely aided by the EU’s open door policy that allows free movement of labour between EU member states.
It seems a straightforward argument. Remaining in the EU would preserve the right of UK businesses to source contractors from other EU member states whereas leaving would not.
This argument gains strength in light of the severe skills shortages that many UK sectors are facing. For example, the construction sector is suffering from a slowdown due to its own talent shortfall.
BSIE acknowledges this and argues that the fallout in the event of a Brexit would be indeterminable, adding: “If we were to leave the EU, many businesses would find it harder to recruit the brightest and best to help them grow and create jobs.”
Leave: Immigration reforms could benefit contractor clients
Rather than heightening the UK talent shortfall, Vote Leave argues that reforms to immigration would benefit the UK economy whilst allowing it to source contractors from further afield. Contractors are easily sourced within the EU to the detriment of contractors from other continents, who Vote Leave argues do not get a fair look-in.
Proposing the introduction of a new immigration system, Vote Leave argues that EU immigration is “immoral, expensive and out of control”, adding:
“EU law demands that the UK has an open door to European countries, while simultaneously stopping highly skilled people from outside the EU coming to the UK to contribute. This has resulted in large numbers of people from across Europe coming to our country.”
Skills shortage “headache” inevitable either way
However, as Bellini argues, UK industry may be little affected either way, considering the wider extent of the talent shortfall and the rate at which technological advancements are outpacing candidate supply:
“Regardless of the decision we make, we have a skills shortage anyway. We’re moving into a highly digitalised economy which requires skillsets such as data analytics, which most countries in the world have a serious problem with.
“Ultimately, it’s largely to do with the education system and the fact that not enough people are undertaking training that would prepare them for these jobs that we’re struggling to fill. So, in or out, it might be differently framed but I think we’d still have a big headache.”
Bellini’s argument is supported by the findings from ManpowerGroup’s 2015 Talent Shortage Survey, which show that an increasing number of firms are struggling to fill roles – 38%, up 2% from 2014.
Playing into the favour of the remain campaign is the fact that nine out of the ten countries reporting the least severe skills shortages are located in the Europe, Middle East and Africa (EMEA) region. This suggests that attempts to source contractors from other continents outside the EU may not prove successful.
VAT charges could deter overseas contractor clients
Also playing into the favour of the remain campaign are the implications of VAT and what this could mean for contractor demand across Europe. Experts from the London School of Economics (LSE) note that every contract with clients in the EU would require a sales tax surcharge of 20% VAT. This could no longer be combined with domestic VAT payments.
“Being a member of the EU means goods and services move freely,” adds Debra Dougal of Haslers chartered accountants. “If goods can’t move freely, VAT has to be paid for them. If VAT has to be paid on goods and services, there’s a cash flow disadvantage.”
Dougal notes that the immediate impact of a Brexit with regards to the movement of services between the UK and EU wouldn’t be favourable, especially within the two year negotiation period. Contractors who frequently trade overseas could be hit particularly hard. The 20% VAT may act as a deterrent, preventing some EU clients from engaging with contractors.
Is contractor flexibility impacted by EU regulations?
Unsurprisingly, each side held differing opinions on the impact of EU-enforced rules on the ability of contractors to be agile, responsive and flexible. BSIE is quick to highlight that acceptance of EU rules ensures a level playing field for contractors and businesses across Europe, adding that it is in the best interests of contractors to remain in order to help influence future policy.
“It is vital for us to ensure that a strong British voice continues to be heard in the EU’s institutions to advance the interest of small businesses. The UK Government is very influential in the EU, and its positions on red tape and business regulation are informed by the views of small businesses.”
Vote Leave argues that, by opting out, the UK could adopt more of a pick-and choose approach to its rules and regulations to the ultimate benefit of its contractors and small businesses.
“Where rules help protect UK consumers, we expect the Government to retain those rules. On the other hand, bizarre, absurd, wasteful and unreasonable rules could be repealed by the UK Government.”
Contractors and SMEs need a swift resolution
Contractors who have had to endure many changes to legislation could challenge the comment from BSIE that the Government’s position on red tape is informed by the views of small businesses. Similarly, the prospect of a UK Government imposing rules free of EU restrictions doesn’t exactly sound promising from a contractor perspective.
According to head of corporate development at Seven Investment Management Justin Urquhart Stewart, these are matters that need to be resolved sooner rather than later, or contractors might suffer.
“The more time we spend renegotiating trade agreements, or getting new agreements through, the less confidence our trading partners will have in us, and the economy and workforce will suffer,” he concludes. “Excuses must be put aside to get a clear decision one way or the other.”