A public sector brain drain of contractors with essential and difficult to replace specialist skills, caused by the off-payroll rules, is threatening public service delivery. Without access to suitably skilled and experienced experts, key public sector programmes are faltering.
“Although the number of workers involved is small, they are people who bring critical skills the civil service cannot replace from its own ranks,” warns ContractorCalculator CEO Dave Chaplin. “The off-payroll rules are having far-reaching consequences, and we’re only now seeing a glimpse of what the impact on the public sector will be years down the line.”
Contractors currently and formerly working on public sector contracts have indicated to ContractorCalculator that key programmes across the Ministry of Justice (MoJ), the Department for Business, Innovation, and Skills (BIS), the Department of Health, the Home Office and the Ministry of Defence (MoD) have all been affected.
The off-payroll rules are not achieving their original objective
Chaplin continues: “The purpose of the off-payroll rules was to ensure that public sector workers who should really be employees pay tax like employees. That’s a worthy objective, because genuine contractors shouldn’t be affected if such a rule is applied properly.
“Instead, genuine contractors are being targeted because of poorly constructed and implemented rules and guidance – we know at least six contractors have been literally forced to apply IR35 when they know they are outside of the legislation – and their departure threatens vital projects. That wasn’t the original idea.
Genuine contractors are being targeted because of poorly constructed and implemented rules and guidance 
Dave Chaplin, ContractorCalculator
“We’ve been told that over a third of all public sector contractors have been directly affected by the off-payroll rules and one in three contractors refusing to comply with them has either been terminated or felt they had to leave,” he adds.
The numbers leaving are small, but the impact is widespread
Evidence gathered from departmental annual reports and provided by contractors suggests that the number of contractors working for central government departments has fallen by 12% since the off-payroll rules were introduced in September 2013.
“In absolute terms, the number of contractors being forced to leave public sector contracts because of the off-payroll rules is small,” notes Chaplin. “However, because of their unique skills and experience, the departure of these individuals has a hugely disproportionate impact.”
Chaplin warns that the consequences of this brain drain may not be felt immediately, but when programmes are not delivered on time and to specification years down the line, taxpayers will once again be forced to suffer because the services simply won’t be delivered to specification.
What happens when contractors are forced to leave?
“If you have a project that requires specialist knowledge but you’ve lost your contractor, what will you replace them with? A civil servant? I don’t think so. If the skills and experience already existed in-house then there would have been no need for a contractor in the first place.
“Furthermore, will the costs of any replacement be the same? Certainly not if you take them onto the payroll – we’ve done those sums and they don’t add up. You also have the added costs of recruitment and training if hiring a new employee.
Chaplin, a former IT contractor who left a ‘body-shopping’ IT consultancy to go contracting, is concerned that the level of competition among the IT services providers with the in-house skills to deliver complex public sector projects is small, so the taxpayer is not likely to get a good deal.
“Will any replacement, such as an expensive consultant, outsourced services provider or IT consultancy, maintain the service levels supplied by the original contractor? And will the workers brought in actually be paying UK taxes? We’ve experienced with the Student Loans Company what happens when an outsourced services provider is appointed in place of contractors.”
Policymakers can take action over off-payroll, but it must be swift
Although much damage has been done, Chaplin believes that if swift action is taken by policymakers and politicians, then further skills haemorrhaging could be avoided and the public sector’s ‘brand’ as a client could start to be repaired.
“Contractors are being forced out by the inconsistent and arbitrary enforcement of these twelve-month-old rules,” he says. “An urgent review of their application and the release of consistent and detailed guidance would benefit both public sector clients and contractors, plus the taxpayers they serve.”
Chaplin concludes: “But if no action is taken, I’m afraid that the legacy of the off-payroll rules, and their authors in government and in the civil service, will not be something to be proud of, as all of us taxpayers will be paying more for our services and receiving less.”