The ability of interim management contractors to turn around the performance of ailing public and private sector organisations will be severely hampered by the new ‘off-payroll’ rules and proposed ‘controlling persons’ legislation.
This stark warning comes from the Institute of Interim Management (IIM), whose co-chair, Ad van der Rest, believes that the government risks sabotaging a key resource for the UK’s economic recovery. Also at risk, he says, will be the UK’s ability to compete internationally if interim flexibility is impaired.
He is critical of the government’s proposals for what he sees as an “indiscriminate clamp-down” on the use of high-level interims. “Individuals abusing limited company structures for the purpose of tax avoidance should be identified and brought to account,” says van der Rest, “but not at the expense of reducing the effectiveness of senior interims hired to make tough decisions and deliver results.
“There is existing legislation in the form of IR35 that HMRC can use to ensure disguised employees pay their fair share of tax, so new rules and legislation are unnecessary,” he adds.
Putting senior interims on the payroll can render them ineffective
According to van der Rest, a high proportion of IIM members are former CEOs and directors hired specifically for their troubleshooting, turnaround and change management skills and experience. These skills are best exercised by individuals who are not part and parcel of their client organisation, he believes.
“A core element of many assignments require the interim to make hard choices that can impact negatively on the people around them,” explains van der Rest. “This requires a level of detachment and independence that a salaried employee would find difficult, if not impossible, to display.”
Van der Rest fears that forcing interim management contractors onto the client’s payroll will not only remove their independence and impact negatively on performance, but will also fundamentally reduce the ability of ailing public sector organisations to effectively deliver public services.
‘Off-payroll’ rules will hamper change projects
“The picture painted by Chief Secretary to the Treasury Danny Alexander’s review of the tax arrangements of public sector interims does not match the profile of the interim sector,” continues van der Rest, “and the criteria the review insists should apply to bring public sector interims onto the payroll are inappropriate.”
He explains: “IIM surveys of the interim profession highlight that most interim management contractors have actively chosen to work flexibly because they relish challenges and as a lifestyle choice, not because of the financial rewards.
“The Alexander review reports that 40% of the 2,200 civil service contractors identified have been on assignment for greater than two years. Our data suggests the average interim assignment lasts 7 months, and only 3-8% of interims work on projects lasting greater than two years.”
Van der Rest points out that a rule that would see interim management contractors forced onto the payroll after six months is inappropriate: “Six months is not long enough for many turnaround assignments to take effect. The time limit is arbitrary.”
Public sector brain drain
The impact, according to van der Rest, will be a public sector interim brain drain. He is convinced that most interim management contractors will simply walk away and secure new contracts in the private sector, or even take their skills overseas, rather than accept the loss of independence, flexibility and income the new rules will force upon them.
Interim Managers should be left to provide turnaround, efficiency and growth solutions without ill-targeted red tape and misguided regulation
Ad van der Rest, IIM
“The result will be a huge loss of talent that will be replaced by individuals unlikely to be of the calibre required to implement the major restructuring and change programmes already underway or likely to be needed,” warns van der Rest.
And if the proposed ‘controlling persons’ legislation (Consultation into the Taxation of Controlling Persons) makes it onto the statue books, the impact on the private sector would be devastating, just when UK plc requires talented interim leadership to secure economic growth in difficult circumstances.
IIM plans to fight the ‘controlling persons’ proposals
Although the die appears to have been cast for public sector interims, there may still be an opportunity to convince the government that wider legislation against interim management contractors makes no sense.
“We have a policy voice at Westminster and will be joining forces with other organisations, such as PCG and the Interim Management Association (IMA), to ensure that the views of interims, and the interim sector, are fully represented in responses to the ‘controlling persons’ legislation consultation,” confirms van der Rest.
“I hope that the outcome will be the realisation that the proposals could damage the UK’s ability to deliver public services and to recover and compete on the global stage,” he says. “Interim Managers should be left to provide turnaround, efficiency and growth solutions without ill-targeted red tape and misguided regulation.”