How Brexit Affect Contractors in the UK
Many people are asking the question “How will Brexit affect contractors?”
“Will Brexit affect contractors positively or negatively?”
How will Brexit affect my pocker?
Or Will there be a Brexit Bonus for UK Contractors?
There are some signs that it will be positive and some that it will be negative for UK contractors.
We will give you both views – and will sum up at the end.
1. Market Uncertainty Good for Contractors
Markets hate uncertainty and so do those hiring permanent employees.
There is currently a lot of market uncertainty due to Brexit. We can see that the pound has fallen from €1.44 against the Euro to just €1.15. The fall has been even greater against the dollar.
It will be the same in the contract market. Currently employers don’t know what Brexit really means. Prime Minister, Teresa May, is not giving them much of a clue either. We know it is going to be a hard one but do not have any details further than that.
So, companies don’t know if Britain is going to be in the single market or not. They don’t know what kind of deals Britain and Europe will come up with to lessen the tariffs in goods and services.
Companies Will Hire Contractors Rather Than Permanent Staff
So, while there is that uncertainty, UK companies will be reluctant to make long term decisions like hiring permanent staff until they know more about how Brexit will affect them.
However, they do have new projects and major systems changes to make and need people to do them.
So, they will turn to contractors. Contractors always thrive in uncertain market conditions.
Indeed, they always do well early in market recoveries. That’s a time when companies decide that they need new projects or major enhancements but they don’t have enough confidence in the recovery to take on long term permanent staff.
The next few years, until the Brexit deal is known, will be uncertain times for them.
So, will Brexit affect Contractors positively here? We think so.
2. Highly Skilled Migrant Programme Will Carry On
This will be a negative Brexit factor for UK contractors.
It has always been the case that far more UK IT jobs and contracts go to people from outside the EU than to those inside.
Indeed, 30,000 people came in that way last year.
The Government have announced that this programme will continue.
Choice Between Contractors and Permanent Employees
It used to be that, when a UK employer couldn’t get the requisite number of permanent staff, they would get a UK contractor instead.
Now, they can get someone from outside the UK, and usually outside the EU.
Indeed, when New Labour was in Government, Minister Patricia Hewitt said that the decision for employers was whether they want a permanent staff member or a contractor.
If the want a permanent member of staff, and they couldn’t get one in the UK, then they could bring in one from abroad. That’s even if it is outside the EU.
This was supposedly because of the skills shortage for IT skills in the UK.
Of course, that put the needs of UK employers and foreign IT workers and companies ahead of UK tax-paying contractors in the pecking order.
So, will Brexit affect Contractors negatively here? We think so.
3. Change is Good for UK IT Contractors
Many older contractors will remember Y2K and the bonanza it provided to UK IT contractors in the run up to it.
Any time there is change it is good for IT Contractors.
The reason is that the IT systems of so many companies will have to change to cope with it.
They will have to cope with changes in tariffs for virtually all goods and services.
Contractors at major banks and financial institutions will have to cope with this as well as any commercial business that imports or exports.
Different Regulatory Regimes
There may, also, be different regulatory regimes. One of the reasons that we are leaving Europe is we don’t like many of their rules.
Changing IT systems to keep up with these new regulations will be a bonus for contractors.
Companies won’t want to take on long term permanent employees for one-off work.
So, Brexit will affect Contractors positively here? We think so.
4. Getting Contracts in Europe Will be Harder
Traditionally, lots of UK contractors have got contract work in countries like Germany, Holland, Belgium and France. Contract rates tend to be higher there.
It will be much harder to get those contracts in the future. It will be much easier for client companies there to hire from other EU countries.
Many contractors working abroad at the moment may have to come home.
You could say that his will be balanced out by the number of EU contractors working in IT in the UK who have to go home.
However, there is no balance there.
Traditionally there has been a lot more UK contractors working in Eu countries than EU contractors working in the UK.
UK Contractors rivals for contract work in the UK tend to be from India, Australia, New Zealand, South Africa etc. rather than from the EU.
Fewer Contracts for UK Contractors
With fewer EU contracts available to UK contractors this will increase the number of contractors on the market in the UK.
Under the economic laws of supply and Demand, if the supply (of contractors) increases then the price of that commodity will fall. That’s unless there is an equal rise in demand.
So, this is likely to cause contract rates to fall.
So, will Brexit affect Contractors negatively here? We think so.
5. Many Foreign Companies Will Leave the UK after Brexit
I remember contracting at Honda in Chiswick as a Projects Manager. I got to talk to a lot of the senior Japanese bosses as well as their UK equivalents.
Honda base themselves in the UK to sell cars across the whole of the EU.
They like being in a country where English is spoken and where they have a good history in IT.
They are not in the UK just to manufacture cars for the UK alone.
If they made the cars in Japan and had to ship them over they would have to pay tariffs. This would make it harder to sell the cars.
Conveniently they can make them as British cars and export them all across Europe tariff-free.
So, what if Honda, Toyota, Nissan etc. have to pay those tariffs anyway if Britain is outside the UK?
Brexit Would Cause Companies to Leave Britain
It would make sense for them to leave and set up elsewhere in the EU – or at least drastically reduce their manufacturing facilities here.
Ireland might be a good choice of places to go – or even an independent Scotland.
Ireland already benefits greatly from companies who want to come to a country which speaks English and with a well-educated workforce with good IT skills.
America has 25% of all its EU technology spend in Ireland, which has only 1% of the EU’s population.
It has all the major tech companies there like Google, Apple, Oracle, Amazon etc.
Might they well have Toyota, Nissan and Honda in the future?
So, how does Brexit affect contractors here?
Well, a lot of these companies have traditionally hired a lot of UK contractors. I’ve met quite a lot of contractors who have worked at one point for Honda.
UK Contractors Would Lose Jobs
A lot of these contracts would go. You could maybe move with them to Ireland, Eastern Europe or maybe an independent Scotland.
It wouldn’t just be in the car industry either.
Any foreign company who bases themselves in the UK to sell into the whole of Europe is a prime candidate to go – taking contract jobs with them.
Indeed many UK companies who sell into Europe might be tempted to open operations in the EU so that they wouldn’t have to pay tariffs on their goods and services.
So, will Brexit affect Contractors negatively here? We think so?
Conclusion to How Brexit Will affect Contractors
In the short term i.e. over the next few years, Brexit should be good for contractors.
The uncertainty until the deal is known will cause companies to hire contractors rather than permanent staff.
Also, with regulations changing, and tariffs coming into force, there might even be a short term feeding frenzy for contractors- not unlike the Y2K years.
This will increase the numbers of contractors companies need and will push up contract rates as there will not be enough contractors to do all of the work companies need.
How Will Brexit Affect Contractors Long Term
However, long term, with each major international company that decides to leave these shores to avoid EU tariffs, a whole raft of IT contracting jobs will go.
In total, this could be in the tens of thousands. This is sure to put IT Contractors out of work. It will also make contract rates fall as there will be the same number of contractors with many fewer contracts available.
So, in conclusion, Brexit will bring a major boost to contractor jobs and contract rates in the first few years.
However, after that, in the years ahead, the number of contract jobs will fall resulting in contract rate falls.
It’s like Y2K all over again when there was a contractor jobs bonanza followed in the early Noughties by perhaps the worst contracting downturn every.
So, enjoy the party, guys – but remember there is going to be the mother of all hang overs afterwards.
Cash in on the contractor bonanza to come.
However, this time around make sure you save for that rainy day that is coming.