The vast majority of UK government IT projects are suffering severe delays due to freelancers quitting over the IR35 tax clampdown.
In April, the government shifted responsibility for compliance with the IR35 legislation from the individual contractor to the public body or recruitment agency. The Treasury says it hopes to raise £185m for 2017/18 by bringing public sector contractors within the scope of the legislation.
Reforms to the IR35 tax avoidance regulations have led to a haemorrhaging of engineering staff from public sector projects, with more than three-quarters of government departments losing IT contractors working on public-sector IT projects and 79 per cent of those projects being delayed or cancelled as a result.
According to the latest ContractorCalculator survey, one-quarter of contractors in the public sector have left and almost half of IT projects have lost at least one-quarter of their contractors. In addition, more than half the contractors who have left public sector work have yet to be replaced.
Furthermore, half of contractors say they won't work in the public sector again if caught by IR35, or only if the extra tax they have to pay is met with higher rates.
However, the overall number of freelancers leaving as a result of the changes is lower than previously thought, with 48 per cent jumping ship. In previous surveys more than 80 per cent had threatened to walk once the changes came into force.
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 rest seemingly took the changes on the chin.
Major consultancies have only managed to fill 15% of IT and engineering vacancies, with more than half of exiting contractors yet to be replaced.
A number of major IT "transformation" projects are under way across the public sector, many heavily reliant on contractors.
But a recent Register analysis of the Infrastructure Projects Authority's annual report found that one-quarter of big government IT programmes are already at risk.
Some of these include HMRC's £220m tax digitisation for business plans; the Home Office's £341m Digital Services at the Border programme; and a raft of Ministry of Justice programmes, including £380m electronic monitoring.
Dave Chaplin, CEO and founder of ContractorCalculator, suggested that the survey ought to provide a "wake-up call" for government.
He said contractors had reported problems with HMRC's digital tax programme, which is to be delayedafter the Treasury Committee exposed "serious shortcomings".
He also mentioned "tonnes of people" working on the Windows upgrade in the NHS are leaving. "The Ministry of Defence has also been a particular problem because of its blanket approach to applying the IR35, something it is considering reviewing."
"HMRC was warned that this would happen and now we have the evidence that shows just how damaging the changes have been - diminished access to the flexible workforce has caused irreparable damage to multiple vital public services, projects have been cancelled and others are running over budget by millions of pounds," said Chaplin.
Earlier this year, the NHS repealed its blanket decision to shove contractors inside the IR35 tax clampdown by default.
Chaplin added: "With Brexit and other challenges right around the corner, HMRC has chosen to shoot the public sector's IT capability in both feet by sparking a contractor exodus. IT contractors are in very high demand, could not be forced into false employment, so voted with their feet."
However, HMRC has rejected the results of the survey. "The survey is based on an unrepresentative sample. There is no evidence of a drift from the public sector and there have been no delays to IT projects due to the new rules. There is no change to contractor pay other than to make sure the correct tax is paid," claimed a HMRC spokesperson.
Source: The Register
