With a U-turn of the controversial ‘mini-Budget’, including dropping plans to repeal reforms to the Off-Payroll Working Rules (IR35), industry leaders at the same time warn, “there are no quick fixes” to current legislation that hampers growth.

“We have had too many employment-related policy decisions drafted from the headline down – it is time to start working from the workplace up, in partnership with employers and employees,” urged Neil Carberry, CEO of the Recruitment & Employment Confederation (REC). 

“Ahead of any further interventions by the chancellor,” Carberry went on to say, “incentivising business to invest in skills and make it easier to recruit and retain staff should be front of mind. One simple amend would be to finally reform the failed Apprenticeship Levy. 

“The economy has suffered but demand in the UK labour market remains strong. Policies to maintain and increase that strength should be the focus as another mechanism for calming the markets and working towards a more productive, better paid workforce.”

Responding to Monday’s [17 October 2022] announcement that the repeal of off-payroll regulations – along with the majority of the mini-Budget plans – will now be scrapped, Tania Bowers, global public policy director from the Association of Professional Staffing Companies (APSCo) has expressed anger from the trade association over the continued instability and lack of confidence.

Describing Hunt’s announcement on Monday as “a panicked response”, Bowers said: “The chancellor’s emergency statement has only served to add to the woes of the UK’s labour market.

“Every business across the UK has faced significant upheaval in the last two weeks where time and investment have quite frankly been wasted in addressing the initial plans and the subsequent market fall out of the former chancellor’s [Kwasi Kwarteng] announcement. 

“In his statement,” Bowers said, “Hunt claimed that growth requires confidence and stability – elements which the UK’s economy has lacked for the last few weeks.”

Further, Bowers argued that the mini-Budget’s inclusion of plans to repeal the IR35 reforms of 2017 and 2021 “arguably had no impact” on the market turmoil of the last few weeks. Conversely, she said, about 35% of contractors had left self-employment as of October 2021 due to the off-payroll reforms, according to data from contractors association IPSE. 

“Our view that this regulation is not fit for purpose for the modern flexible workforce needs of today remains, and we will continue our efforts to address this issue with government bodies once again,” Bowers said.

Brendan Sharkey, head of construction and real estate at accounting group MHA, held up the proposed repeal of the IR35 reforms as an example of an idea that would have helped industry.

“Scrapping the IR35 reforms was one of these measures,” Sharkey said. “In the construction sector at any rate, it would have reduced red tape and helped with concerns over engagement of labour when it is in especially short supply.

“Many actually left the industry when the new IR35 rules came into play (in April 2021). However, with increases to the cost of living and with pension funds falling there is now a real incentive to return to work. So, scrapping the IR35 changes would have helped to drive recruitment at exactly the right time. Although the new chancellor spared the stamp duty reduction, this is really a non-event anyway given the increase in borrowing costs.”

Slightly countering Sharkey’s comments, Penny Simmons, legal director at multinational law firm Pinsent Masons, said that the scrapping of proposed changes to the tax rules around off-payroll work is likely to be met with relief from businesses in the short term, but fundamental problems with the system remain.
 
Simmons said: “In the longer term, IR35 still doesn’t work properly and needs to be heavily reformed. However, in the short term, businesses will be relieved that they don’t have to scrap all the work they have done in the last few years to be compliant with the current rules.

“Many businesses had been frustrated that they had spent significant amounts of time and money to become compliant with the new IR35 rules and would now need to repeat the process as the rules changed yet again. There is some relief that this will not now need to happen,” Simmons said.
 
However, businesses say that the 2021 rules, which will now stay in place, are still much too burdensome in requiring businesses to take legal responsibility for all the contractors and third parties in their labour supply chains. “Far-reaching reform of the system now needs to take place,” Simmons said. “The government should now consult with businesses, tax professionals and stakeholders across industry to develop a tax system that’s fairer to businesses and off-payroll workers and isn’t vulnerable to tax avoidance.”

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