Public sector organisations are shouldering the costs of recent changes to legislation around ‘Off-Payroll’ working, according to the latest research from The Association of Professional Staffing Companies (APSCo).

A recent survey of APSCo’s professional recruitment consultancies found that 45% have seen the costs of resourcing contractors increasing since the new rules were introduced in April 2017. Of these, 46% reported that rate rises were in excess of 15%.

The data also showed that 70% of respondents reported that contract numbers in the public sector have decreased since April 2017. In April 2016, more than 50% of APSCo respondents said that over 75% of their public sector contractors were working through their own PSC. By August 2017, this figure had dropped to 20%.      

When asked about their perceptions of how public sector organisations are managing changes, over half (51%) said that clients have not got access to the tools and expertise necessary to make the correct determination, while 43% said that, in their opinion, the HMRC employment status tool does not generally produce reasonable status decisions.   

Meanwhile, 78% of respondents agreed that the extension of the IR35 Off Payroll rules to the private sector will impact the ability of the UK economy to source flexible labour.

“As we feared, it seems that these changes have had an adverse effect on the supply of contractors to the public sector,” Samantha Hurley, Director of Operations at APSCo, said. “The increase in rates which has been noted can be attributed to two factors: the scarcity of resource created by candidates moving into the private sector and the market adjusting by passing on additional tax and NI (National Insurance) costs to the public sector client.”

 “As APSCo warned, it would appear that HMRC’s calculations of anticipated savings, which didn’t take into account additional expense to the public sector, will be over ambitious,” Hurley said. “There are fewer contractors now being supplied through PSCs (Professional Services Companies) and there is an obvious consensus on the increase of use of umbrella employed contractors, with 82% recording a rise. This is a trend our members anticipate to be ongoing.”

“We assume that HMRC is continuing to consider an extension of the Off Payroll rules into the private sector. Like our members, we believe that this will have an adverse impact on the strength of the UK’s labour market and wider economy. The rise of professional contracting delivers multiple benefits to the UK economy through a highly productive and skilled labour force available on demand. Introducing the Off Payroll rules into the private sector without a full understanding of the market and the impact that an increase in costs will have on private sector productivity could have a devastating effect on UK competitiveness.

Dave Chaplin, CEO and founder of online contracting site ContractorCalculator, commented on APSCo’s data. “Our research along with this latest APSCo survey supports the overwhelming evidence that any further roll out to the private sector would be hugely damaging to the UK overall.” 

Julia Kermode, chief executive of The Freelancer & Contractor Services Association (FCSA), also commented, “APSCO’s research serves to shine another spotlight on the negative impact that IR35 reforms in the public sector are having and the stats support the facts.  We have seen sweeping decisions being taken by some public-sector bodies banning all workers who operate through their own limited company.  This, in turn, has seen many contractors deciding to leave the public sector, or seeking an increase in their rates, which in turn is exacerbating skills shortages and financial pressure in an already stretched public sector.”

“HMRC has always said that these new changes would only affect non-compliant contractors, and would not impact on the flexibility of the workforce, both of which are incorrect and not what we are seeing in reality on the ground,” Kermode said.

“We are aware there are lots of dubious schemes out there and we have seen a definite increase since the changes in April as they target public sector contractors whose income has been reduced,” Kermode said.