Chancellor’s Spending Review fails to quash IR35 concerns

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Sajid Javid delivered his first major set piece as Chancellor of the Exchequer on Wednesday in an announcement that was largely overshadowed by an embarrassingly brutal first Prime Minister’s Questions for Boris Johnson and MPs wrestling control of the Parliamentary agenda away from the Government.

In what many perceived to be a pre-election giveaway, Javid announced an end to austerity and £13.8 billion increase in public spending.

However, recruitment and staffing industry bodies have claimed that the Chancellor’s statement did nothing to alleviate their two main concerns: what the impact of the extension of Off-Payroll into the private sector will be, and whether Britain will continue to have access to the skills it needs post-Brexit.

The absence of any IR35-related policy changes will not be of great surprise to contractors, following the publication of the draft Off-Payroll legislation in July, but there is a growing sense within the sector that businesses simply will not be ready for the seismic change that is impending on April 6th.

Some of Javid’s key policy announcements were:

  • £13.8 billion real-term increase in spending in 2020, including £1.7 capital spending
  • £2 million earmarked for Brexit delivery next year
  • Javid hinted that he would change the Conservatives’ spending rules that prevent borrowing more than 2% of GDP
  • £750 million to fund 20,000 new police officers
  • 5% real-terms increase in the Ministry of Justice budget to allow for 10,000 additional prison places
  • Local councils to receive an extra £1.5 billion for social care
  • £432 million additional funds to tackle climate issues
  • School spending to increase by £7.1 billion over three years, to ensure each secondary school is allocated £5,000 per pupil and each primary school is allocated £3,750 per pupil
  • More than £700 million extra funding next year to support children and young people with special educational needs
  • NHS spending to increase by £6.2 billion next year
  • An extra £2.2 billion for defence next year, a real-terms increase of 2.6%

Commenting on the Chancellor’s announcement, Sam Hurley, operations director at the Association of Professional Staffing Companies (APSCo), said that whilst the £2 million of extra funds may be required in the event of a no-deal Brexit, preparations will still take time.

“As such, we fully expect that there will still be a significant impact on businesses, including the professional recruitment industry and its clients, in the event of a no-deal exit next month,” she said.

“Additional spending in the public sector generally flows down into a loosening of constraints on recruitment and contract spend, but we wouldn’t expect any reversal on existing framework rates, although hiring numbers may increase.

“The spending review does nothing to reduce our concerns about the impact of IR35 off-payroll on the private sector, the flexibility and availability of contractor resources, and the implications for the contracting labour market, which will undoubtedly be reduced flexibility and increased costs.

“We do, however, welcome the commitment to give schools a cash boost to improve education, as well as the additional funding to train and teach more than a million 16- to 19-year-olds the skills they need for well-paid jobs in the modern economy, though the impact of this won’t be noted for some time yet.”

Association of Recruitment Consultancies (ARC) chairman and managing director of Lawspeed, Adrian Marlowe, highlighted the need for the UK to retain a workforce that is fit for purpose, regardless of the outcome of the current political tussling:

“This means the continued ability to hire staff that have the right skillsets for the work available, wherever that staff may be drawn from. Complementing that, the tax regime relevant to specialists should be sufficiently attractive to facilitate their retention and interest in working in the UK, and a rejigging of the current thinking which appears to be overly focused on addressing tax avoidance rather than the conditions to promote entrepreneurial growth.”

Tom Hadley, director of policy and campaigns at the Recruitment and Employment Confederation (REC), responded to the Spending Review by pointing out that the additional funding will only be effective if the right staff and skills are in place to deliver the associated projects and services:

“We need a twin-track approach involving a radical step change on skills strategy and progression, together with an evidence-based immigration policy.  On this, we will continue to make the point that this isn’t just about the ‘brightest and the best’. REC monthly data shows that we need staff to fill vacancies across a wide range of sectors and job roles.”

6th September 2019.