Spotlight on IR35: Talent drain is deeply damaging for both business and the UK economy

Following on from last year’s inaugural report, this week saw IPSE release the second edition of its annual IR35 Spotlight research. And it’s fair to say, the impact of IR35 on the sector remains ruinous.

On a more encouraging note, the research – which was trailed in the Financial Times and received wider coverage in the Telegraph and other business titles – has already made a mark with policymakers.

First, backbench MP, David Davis, used the key stats of the report to call for the government to look again at the IR35 rules in a tweet that went out to his sizeable following.

Similarly, we’ve also sent the report to the Financial Secretary and plan to raise the findings of this research in our regular quarterly meetings at Downing Street with the Small Business Minister and the PM’s Special Advisor for Business.

One in ten out of work due to IR35

This was the key focus of our engagement with the press. The fact that one in ten (10%) contractors are currently out of work due to IR35 is a devastating indictment and quite rightly, both the FT and the Telegraph ran with this story.

Government is repeatedly citing its ‘back to work’ drive as a solution to the ever-increasing economically inactive cohort. Yet, the failure to correct this anomaly within the contracting market feels like a glaring omission.

And with the Office for National Statistics’ latest figures revealing that the economically inactive are only increasing as a population, this omission is proving particularly costly to potential clients and wider economic growth.

Contractors seeking roles overseas

UK businesses rely on contractors to provide flexible specialised expertise in order to grow. Indeed, we know that over half of all clients believe that freelancers enable businesses to go beyond the limits of their internal resource base and maximise their performance.

It should be very concerning, therefore, that so many contractors are now exclusively seeking roles with clients abroad.

In total, a quarter of all contractors (24%) are now planning to only seek contracts with clients overseas in the next 12 months – ultimately at the expense of UK plc.

Businesses being turned down by contractors

Another interesting facet of the research was contractors increasingly turning down the offer of engagements that were deemed as ‘inside IR35’ – over half (55%) doing so in the past 12 months.

Not only is this making the supply of outside IR35 roles more competitive for contractors, but it is also making it harder for clients to plug their talent gaps.

Rules should be designed to support and aid businesses, not stifle them.

Clients need to be confident again in the rules and stop the implementations of blanket bans and blanket assessments due to concerns around falling foul of HMRC.

Only clarity with employment status or the scrapping of the reforms to IR35 can come close to restoring this confidence for clients.