Public sector concerns over IR35 reform

Public sector employers say IR35 changes would cost them money and talent, a new survey by the Recruitment and Employment Confederation (REC) reveals.

Furthermore, they are particularly concerned that the rule changes will inhibit their ability to attract the talented individuals they need to effectively run local authorities and NHS trusts.

The survey of 95 public sector HR managers was conducted as part of the REC’s submission to the HMRC consultation on ‘Off payroll working in the public sector’, which closes this week. Seven out of ten (69.5%) public sector employers expressed fears that the government’s changes would have a negative impact on councils, hospitals and schools, by increasing their wage bill or damaging their ability to attract and afford the senior contractors and interims they need to manage local public services.

The planned new rules will apply to all businesses that supply individuals to the public sector if they are not paid via RTI payroll, i.e. freelancers, interims and contractors who are self-employed, engaged to undertake specific projects. HMRC proposes to make the public sector hirer responsible for determining whether the individual is inside or outside IR35, and this new responsibility can be delegated to the supply chain if the contractor is sourced via an intermediary.

Commenting on these findings, REC Chief Executive Kevin Green said: “At a time when the public sector is struggling to recruit talent because of a declining pool of people with the right skills, this could really spell trouble for the effective running of the NHS and other vital public services. The public sector needs to be able to attract the brightest and the best, yet our own government is creating unnecessary barriers for beleaguered HR teams who need to bring in fresh talent and smart thinking during these difficult times for public spending.

“There is no doubt that HMRC should be enforcing the rules better. But in light of this latest data and the wealth of supporting evidence out there, we believe that the government should conduct a wholesale review of IR35 and at the very least, delay the implementation of this proposal – rather than rushing it in for April 2017.”

Julia Kermode, Chief Executive of the Freelancer & Contractor Services Association (FCSA), stated: “The public sector is already stretched and relies on the invaluable skills of the flexible freelance workforce. Evidence suggests that the introduction of these reforms will see contractors less likely to choose public sector assignments, which in turn will exacerbate current skills shortages and potentially generate new ones. This is particularly concerning given the work needed to manage the UK’s exit from the European Union, which will require a highly skilled team to negotiate and manage the transition, who by definition will not be permanent employees.”

The Association of Independent Professionals and the Self-Employed (IPSE) Deputy Director of Policy, Andy Chamberlain, added: “This research shows just how worried public sector employers are over the proposed changes. The recruitment industry, the freelancer industry and even HMRC all have evidence that this proposal is a bad idea. IPSE urges the government to reconsider implementing this damaging measure.”