As if the state of the economy were not bad enough with increasing indications that the UK is entering or already in a recession, contractors are now faced with puzzling out how the failure of Jonathan Bessell to win his Dragonfly IR35 case appeal in the High Court will affect them.
There is increasing evidence that the jobs market is slowing down, as the Office of National Statistics and Monster Employment Index data show a gloomy picture.
However, it is not all doom and gloom for the contracting sectors. Positions and pay are being maintained in IT as the skills gap bites and firms increasingly rely on IT professionals to maintain their business during the projected downturn. The scope of this month’s ContractorCalculator Market Report highlights:
- Dragonfly losing IR35 appeal at High Court
- IT looking healthy despite the downturn, with hiring and rates being maintained
- Monster Employment Index falls again, with another month of reduced online recruitment
- Office of National Statistics releases latest official labour market statistics that show a gloomy overall picture
- Hays research supports IT skills gap, with many IT workers lacking business as well as technical skills
- Survey reveals 64% or firms will cut agency workers if the Agency Workers Directive goes forward.
Jonathan Bessell loses his High Court IR35 appeal
According to Accountax, retained by the Professional Contractors Group to defend Jonathan Bessell during his appeal, they are disappointed with the result but are awaiting further analysis before commenting on what the outcome could be for the contracting sector.
Similarly, John Kell, of the Professional Contractors Group would not be drawn on the implications, telling ContractorCalculator: “[We] were hoping for some more guidance and are now considering options for the future.”
It is early days following the ruling and many IR35 specialists are planning more detailed analysis of the judgement. ContractorCalculator will report on these analyses as they happen, with the aim of compiling the expert advice to produce a balanced guide to the lessons contractors should take from the IR35 appeal.
We were hoping for some more guidance and are now considering options for the future
John Kell, Professional Contractors Group
IT bucks the market trend
Despite the potential blow to the contracting sector as a whole resulting from the Dragonfly decision, IT contractors should take heart from a survey conducted by IT staffing firm ReThink Recruitment.
According to their research:
- 49% of IT directors are planning to increase IT staffing in the next 12 months, with just 13% anticipating cuts
- 69% of IT departments are looking to increase or maintain their numbers of contractors in the next 12 months
- 47% of IT directors anticipate increased IT budgets, against 19% who are forecasting a cut.
Michael Bennett, Director, ReThink Recruitment, says: “IT Directors are reasonably confident about the outlook over the next 12 months, despite lingering economic uncertainty. IT departments savaged headcounts after the dot com and Y2K booms, but we appear to be a long way from a repeat of that scenario.”
Further research by Incomes Data Services and theitjobboard.co.uk give further assurances over IT worker pay and security, mainly due to the skills shortage in the sector.
Monster Employment Index drops for third month
Overall, the Monster Employment Index saw a three-point drop in July, but year on year growth is still at 5%. This is perhaps an indirect indicator that the growth of the UK economy we have enjoyed for some years is now coming to an end, with the economic cycle dipping into a downturn.
“The UK economy continues to slow and the outlook for the rest of 2008 remains gloomy, meaning tougher conditions in the labour market. Given this backdrop, it is not surprising that online recruitment is now moderating, with fewer job offerings than a year ago in areas such as finance, retail and technology,” commented Hugo Sellert, Head of Economic Research, Monster Worldwide. “Still, it should be noted that advertised vacancies remain well above last summer’s levels and that demand in the education, healthcare and tourism sectors, and overall in Northern Ireland, remains elevated.”
Engineering has seen a slight increase in demand for workers, but construction continues its decline and IT has seen a slight decrease. Marketing, PR and Media has sprung back slightly after last month’s disastrous fall.
These results demonstrate the complexity of the online recruitment sector, but what is clear is that the trend in online job availability is, overall, going down.
Official labour statistics tell grim tale
The Office of National Statistics’ latest official labour market report published in August clearly supports the trend highlighted by the Monster Employment Index; things are going down, with the unhappy exception of rising unemployment:
- Vacancies in the UK were down by nearly 50,000 from the previous month
- The number of unemployed people has increased by 20,000 in just one month
- Growth in average earnings has fallen.
This does not paint a pretty picture and, according to Dr John Philpott, Chief Economist at the Chartered Institute of Personnel and Development, “This is the weakest set of labour market data since the economic slowdown began.”
Philpott continues: “The impact of the economic slowdown is also becoming more widespread. Nearly every sector of the economy posted fewer job vacancies in the three months to June.”
But although this presents a threat to the economy and workforce as a whole, it could provide ideal opportunities for workers currently in permanent roles who are thinking about becoming contractors.
Signs are that contracting sectors such as IT and oil and gas will weather the downturn and come out of it as robust as ever. It also seems likely that the contracting sector as a whole could experience an overall rise in contract opportunities, as employers realise the benefits of being able to employ flexible, highly skilled people at very low risk and relatively low cost.
IT workers face skill challenge
However, according to a major survey by recruitment consultancy Hays Information Technology, contractors in the IT field need to work on their skill sets.
The research asked senior IT professionals about what impact they thought IT has on business strategy. In their answers, only 25% of respondents thought technical skills were the top skill for IT management staff to possess. The main skill required, according to 39% of respondents, is leadership.
The vast majority, 73%, of the senior IT professionals quizzed felt reasonably or very confident that their IT teams have the right skill sets. Worryingly, 27% are doubtful or uncertain.
And it appears that many IT contractors have perpetuated the myth of the nerd as 54% of those asked said communicating IT issues to non-IT audiences was the hardest skill to recruit.
Contractors should be ahead of the game, because, being in business for themselves, they have to perform a wide range of business skills in order to remain successfully contracting.
Agency Workers Directive could backfire
Progress on the Agency Workers Directive (AWD) has been slow, and news on it very quiet, over the summer, with the European Parliament in recess and the European Commission (EC) in Brussels having many key workers on holiday.
As an issue, the AWD should hot-up over the coming weeks and months as the legislation, signed-up to by the UK government with no opt-out for contractors, returns to the European Parliament in Strasbourg and the EC for ratification and acceptance into European law.
More worryingly, the first signs of an employer backlash have emerged from the findings of research conducted by law firm Eversheds, which clearly demonstrates that employers won’t stand for the increased employment costs that will accompany the AWD. The results are telling:
- 64% of UK employers believe they would reduce their reliance on agency workers
- Three quarters do not believe agency workers should receive the same rights as full time staff
- Eight out of ten believe the AWD will result in significant costs for their UK workforce.
These findings show that there are some strong feelings about the proposed legislation among UK employers
Martin Warren, Head of Employment Law at Eversheds
“These findings show that there are some strong feelings about the proposed legislation among UK employers,” says Martin Warren, Head of Employment Law at Eversheds. “However it is important to note that employers are still waiting for the detail on how the Directive will impact in practice and therefore there are currently many unanswered questions on the issue.
Contracting is certainly never dull, and with the Dragonfly case analysis, the announcement of more detail by government about the AWD and the worsening state of the economy, ContractorCalculator will be keeping contractors informed about all these issues as they happen and why they matter.