Reacting to the Autumn Statement, the Association of Professional Staffing Companies, APSCo, warns that the UK is now in danger of moving from being one of most flexible to one of most inflexible labour markets in the world.

According to APSCo’s operations director, Samantha Hurley, the government’s tax-related announcements in particular could be a disaster for public sector talent supply.

“The Government has announced that it is to introduce IR35 tax changes, which will result in personal service company contractors in the public sector losing their right to determine their tax status. We are furious that the fovernment has ignored all industry stakeholders and has overridden the concerns of its own departments. This change will give recruitment firms and other engagers, who pay the contractor, liability and responsibility for operating payroll and paying the correct taxes to HMRC,” Hurley said.

These changes will convert the UK from having one of the most flexible labour markets in the world to having one of the most inflexible labour markets in the world, according to APSCo, because the vast number of contractors work through recruitment firms and other engagers. Hurley stressed that it is these unconnected third parties that will bear the responsibility and legal liability for making the correct decision on tax status, “namely whether the contractor is working in a similar way to an employee, and therefore liable for paying same taxes as an employee, which is an over-simplification of IR35.”

In what the trade body considers a disappointing and illogical move, Hurley believes the public sector will inevitably see its costs rise at a time when budgets are already very tight.

A survey of independent professionals undertaken in July this year by IPSE, a membership body for independent professionals and the self-employed, revealed that 39 per cent of respondents would work on public sector contracts but would increase their day rate to compensate for the extra tax liability.

The same survey showed that over half of the respondents would refuse to work on public sector contracts, or would terminate contracts if they had to pay tax and NICs as an employee when delivering services independently. According to Hurley, APSCo is already seeing the public sector’s access to talent being severely impacted, with multiple walkouts from a Ministry of Defence Agency which has left several major IT projects on hold.

“The Chancellor has just promised large scale investment in infrastructure and science and digital innovation to the tune of £23 billion over the next five years. However we would question how the public sector will deliver on this promise when HMRC has just destabilised the flexible labour market in the UK, which government departments and local and regional government rely on.”

Considering the Chancellor’s focus on productivity, Hurley believes his tax-related announcements are counterproductive. “His failure to recognise the connection between our current flexible labour market and the Government’s aspirations for higher productivity will result in all these projects running way over budget and way over time,” she explained.

HMRC is developing an online tool which will determine an individual’s tax status to help streamline the process, but Hurley believes that the public sector, the accountancy profession and the recruitment sector are sceptical as to whether this tool can deliver certainty.

“The UK’s ability to prosper in a post Brexit world will depend on our ability to source highly skilled experts – often on a short-term contract – and on a just in time basis. We would seriously question whether these independent specialists will still be available?”