IR35 Delays 80% of IT Projects in the UK Public Sector

IR35 Delays 80% of IT Projects in the UK Public Sector

A previous blog post, from March of this year, warned of an emerging digital skills crisis in the UK public sector. According to a National Audit Office report, the UK government will need to spend £725 million over the next five years on training new digital staff. Two thousand new hires with digital expertise will be required to keep pace with the increase in demand.

We also warned that the introduction of new IR35 tax rules in April 2017 could have a devastating effect on public sector IT projects with a mass exodus of IT contractors taking place at a time when the digital transformation of public services had started to gain momentum.

Evidence relating to the actual impact of IR35 has recently become available. Based on a survey of 405 IT freelancers, the study concluded that 79 per cent of public sector IT projects have been delayed as a result of contractors leaving because of the IR35 tax clampdown. The overall number of freelancers leaving the public sector, however, has been considerably lower than expected with less than half (48 per cent) jumping ship compared with earlier predictions that 80 per cent would leave.

Half of the contractors who decided to stay managed to find a way of working outside the IR35 changes, with a further 13 per cent working within the scope of IR35 but negotiating a rate increase. The remainder took the changes ‘on the chin’.

The survey, undertaken by Contractor Calculator, follows a July Register analysis of the Infrastructure Projects Authority’s annual report which found that one-quarter of big government IT projects, worth a total lifetime cost of £8bn, are at high risk of failure. Nine of the 39 IT projects evaluated, worth £18.6bn, were rated as amber/red meaning that successful delivery of the project was in doubt.

Not surprisingly, HMRC dispute the above findings, claiming that the survey is based on an unrepresentative sample and that there is no evidence of a drift from the public sector and no delays to IT projects due to the new rules.

From Bridgeall’s point of view, the survey results lend weight to our earlier argument that building a strong base of SME IT suppliers, working in partnership with systems integrators and recruitment agencies, is critical to closing the digital skills shortage, accelerating the public sector digital transformation agenda.

Becoming a world class digital nation requires world class digital companies. The public sector should grasp the opportunity to directly support that by engaging the greater agility, delivery certainty and better value provided by SME’s now.

Original article here – 80% of IT Projects in the Public Sector Delayed Due to IR35.