Government IR35 Bet
We are seeing a massive Government bet that UK contractors will stay in their current contracts That’s even though the contractors will get a large cut in income when the new IR35 rules take effect on April 6th. If all contractors stay in their current positions the Government and HMRC’s huge gamble will have paid off. There will be no effect on the economy and HMRC will rake in £3 billion in the next 4 years. However, if contractors leave their current contracts en masse then the effect on the UK’s major companies and the economy will be devastating.
Contractors Questions on Government IR35 Bet
- How do companies currently use contractors?
- How important are their computer systems to companies?
- What are the Government hoping for from their IR35 changes?
- How could the Government IR35 bet fail?
- Why are the Party of Business interfering with the flexible worker market?
- What happened when the Government made These IR35 changes in the Public Sector?
- What will be the effects on major UK banks operating blanket IR35 bans?
- Which banks have announced blanket bans on personal service company contractors?
- What will happen if contractors leave companies en masse?
- Could the massive Government IR35 bet blow up in their faces?
- How will the IR35 changes affect the UK economy?
- Could the IR35 Changes Impact the UK Economy More than Brexit?
How Do Companies Currently Use Contractors
Companies use a mix of freelance and permanent staff. It doesn’t make sense, when there is a new project, to hire lots of permanent staff to complete the project.
The reason is, that when the project is complete they won’t need all the people who created it. They will need some of them to maintain the system However, most of those working on a project will go at the end of it.
That’s why companies use a mix of contractors and permanent employees. Currently most companies will have what they see as the optimum mix of permanent employees and freelancers. If this balance changes in any way then the company will no longer have this optimum mix.
How Important Are Their Computer Systems to Companies
“Our computer systems are our business” say many companies. Nowhere is it more true than at the major UK banks. So, if companies are forced, by some outside measure to operate in a manner that they don’t see as the optimum way of working then this is bound to have an effect on the business.
What Are the Government Hoping for From Their IR35 Changes
What the Government and HMRC hope is that all contractors in a blanket IR35 ban will simply accept their fate. Then, companies can operate in the same manner as before.
The contractors would stay in their current positions even though they had to pay much more tax. The Government and HMRC would be delighted by this huge extra cash cow. And business would go on as normal with the companies’ contractors taking the financial hit.
That’s their perfect scenario.
How Could the Government IR35 Bet Fail
However, if the contractors at companies don’t simply accept this and leave to go to companies that allow them to continue to operate via their personal service companies then the blanket ban companies and the UK economy could take a massive hit.
Could you imagine a situation where most of the top companies in the UK were operating less efficiently than previously due to Government interference in the economy.
Why Are the Party of Business Interfering with the Flexible Worker Market
The Conservatives are supposed to be the party of business. However, if the Government IR35 gamble fails this will be one of the greatest interferences in the UK economy that we have everseen. Most of our major companies would be no longer working at their optimum due to Government changes forced on them.
What Happened When the Government Made These IR35 Changes in the Public Sector
The Government made these changes in the public sector first in April 2017.
There were massive problems with computer systems as UK IT Contractors left in droves to go to the private sector.
According to Dr George Mantides, who is fighting an IR35 case “This has had the effect of dramatically reducing the number of healthcare professionals providing their services, especially to the more remote places- to the tune of 11,000 doctors according to data.”
That’s a massive hit to the National Health Service. The health care professionals that Boris Johnson says he is going to hire are only replacing those who left because of IR35.
Also, in the 6 months after the IR35 changes took effect in the public sector, locum doctors’ pay rates increased at an annual rate of 13%.
What Will be the Effect on Major UK Banks Operating Blanket IR35 Bans
The effect on the UK’s major banks will be even more extreme. These institutions are top heavy with contractors.
They are also writing new systems to help them comply with new regulatory rules. If these systems are delivered late there will be a huge hit on the banks.
There is also the LIBOR decommissioning projects at the banks. Altogether we are talking about trillions of pounds here.
That dwarfs the £3 billion that the Government and HMRC expect to make from the IR35 changes in the private sector over 4 years. If the LIBOR decommissioning project is late there would be a huge cost to the banks.
If the LIBOR decommissioning projects at the major banks lose the highly experienced contractors who are currently working on the projects at the various banks then they will be in big, big trouble.
Which Banks Have Announced Blanket Bans on Personal Service Company Contractors
The banks who have announced blanket bans on contractors who operate via personal service companies are as follows:-
- Barclays Bank
- Royal Bank of Scotland (RBS)
- Lloyds Bank
- Tesco Bank
- Morgan Stanley
What Will Happen If Contractors Leave Companies En Masse
If UK contractors across Britain don’t just meekly accept an effective pay cut then profitability at all major UK companies issuing an IR35 blanket ban on contractors will be cut.
If all our major companies are working less efficiently then they use to then there is sure to be an impact on profitability. That will have an impact on jobs and in tax paid by people working for those companies.
Could the Massive Government IR35 Bet Blow Up in Their Faces
It is very easy to calculate how much the Government and HMRC will get from IR35. It will be a lot harder to calculate how much they will lose if our companies are not using their contractors in an optimum way as regards the right blend of permanent staff and experienced contractors.
If the Government gamble goes wrong this could, potentially, have a major impact on the UK economy perhaps even eclipsing the hit that Brexit will cost the UK economy.
The Conservative Government say they want to cut regulations affecting big and small businesses Then they come in and massively interfere with what is a very efficient part of the economy.
How Will the IR35 Changes Affect the UK Economy
There is no way that these IR35 changes will affect the economy in a good way.
There will either be no damage to the UK economy from the IR35 changes or some damage or a lot of damage.
There will only be no damage to the economy if every single contractor throughout the land decides to stay with their current companies despite taking a massive financial hit. And we know this did not happen when the Government implemented the IR35 changes in the public sector
Each contractor who leaves a company taking their experience, their systems knowledge and business knowledge of a company’s systems will damage his or her client companies ability to deliver computer systems on time and to budget and to do what the companies want the systems to do.
Each contractor that leaves will negatively impact the profitability of a company and the UK economy. If thousands of contractors leave that effect will be multiplied by thousands. If tens of thousands of contractors leave their current clients refusing to take te massive income drop then both UK companies and the UK economy will take massive hits.
Could the IR35 Changes Impact the UK Economy More Than Brexit
And this will dwarf the relatively piffling amount of money the Government will raise from IR35.
Indeed the effect on the economy if the massive Government IR35 bet goes wrong could be even greater than Brexit.
The Government are interfering with what is a market working at maximum efficiency. We are seeing a massive Government IR35 bet on the British economy that virtually all contractors stay put. If they lose this bet then the the double whammy of Brexit and IR35 could cripple the UK economy.
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