Crystal Umbrella

Small businesses borne in the noughties are likely to suffer greatly if they currently supply the public sector. Insolvency trade group, R3 have warned that newer firms who are reliant on public sector contracts are more at risk of failing when the country is coming out of recession.

R3 have based their statistics on companies with a turnover £50,000 to £1m although these companies are not necessarily IT specific. Their research was conducted amongst 301 firms which were started in the 90s or 2000s, with over 33% stating that their business relied primarily on those public sector contracts. These businesses are far more reliant on state contracts than firms which began in the 1980s or before. The research actually showed that 90% of firms are expecting to suffer a substantial hit when the public sector funding is cut. Overall, firms are expecting to see an effect on their profits if they lose their public sector contracts. Of course, this will also have an effect on their employees, with 14% considering job losses, which is to be expected, considering that 37% of those polled predicting that they will find themselves in serious financial difficulty.

R3 president Steven Law commented: “It is of course highly unlikely that all public sector contracts will be withdrawn and the figure of 150,000 business failures would represent a worst-case scenario. Yet…businesses need to be aware of this risk and seek professional advice before this reliance on public sector work threatens”

Jenrick IT have conducted research amongst 550 IT contractors, each with an online presence, which has concluded that contractors who fail to update their skills on a regular basis are likely to experience stagnating pay rates.

Speaking of their findings, Jenrick stated that over a third of their respondents confessed to neglecting further training and skills building. Jenrick stated the result of this negligence was “limiting their opportunities” and capping their actual earnings potential.

Philip Fanthom, Jenrick’s managing director, commented: “Contractors need to be aware of the external environment in which they operate. More and more clients are seeking skill validation, in the form of external recognition through accreditations, as a core part of their initial screening process.”

He continued: “It is very easy for contractors to get ‘sucked in’ to the environments in which they operate…[often] due to the intensity of the projects they are involved in. This often means that self-development, in terms of skill enhancement and the gaining of accreditations, is often neglected.”

Having assessed Jenrick’s findings, fellow IT recruiter Hays IT stated that IT contractors should be building on their skills every week. Contractors should also be regularly reviewing their skills set in a bid to highlight any learning needs. This is especially important as more and more contractors are looking for opportunities out-with the public sector due to the funding cuts.

Finally, SQ Computer Personnel’s Bernie Potton concluded: “Public sector end-users may offer retraining or a skills upgrade as a part of a redundancy package. So IT workers should take advantage of all the training and development the public sector might offer, if they want the best opportunity to find work elsewhere.”

Research conducted by Giant Group plc has found that confidence is returning to the financial sector. Contractors who took part in the survey were asked where the work would be coming from and the largest proportion (30%) agreed that the financial sector will produce the most job opportunities over the coming year. This is double the respondents who felt this way last year. Unsurprisingly fewer than 10% of those surveyed believe there will be plenty of public sector contracts up for grabs next year.
Managing Director of Giant Group plc, Matthew Brown, commented: “Optimism about IT job creation in the financial services sector has bounced back strongly. Financial institutions are reviving projects which were put on hold during the recession. With IT departments now struggling for capacity as workloads have increased, hiring has once again picked up.”
He continued: “Financial services businesses are adapting their front office systems to the realities of the post-credit crunch world. They are facing huge regulatory pressure to make transactions more transparent and improve risk monitoring. Whilst one or two banks might be trimming back and middle office staff, that seems to be against the broader trend. Banks and other financial institutions are investing heavily to integrate IT systems following the wave of mergers precipitated by the financial crisis. The purpose of these projects is to achieve cost savings, so these are projects banks are keen to push ahead with in the expectation of a fairly substantial return on investment.”
Speaking about pay rates in the financial sector, Mr Brown concluded: Matthew Brown said: “Rates for many contractors in the financial services sector were slashed during the recession. It is encouraging that a reducing number of contractors expect to have their rates cut again over the next 12 months.”

This week PAYE has been in the spotlight but it has transpired that there have been concerns around the system for some time now. Back in July a report was published by the National Audit Office in which they criticised HMRC for the extent of their backlog in dealing with cases where people had either over paid or underpaid taxes. They believed this situation affected a total of 18.2 million.

The Controller and Auditor General at the National Audit Office, Amyas Morse, stated: “The Department has not made enough progress in reducing the backlog of 18.2 million income tax cases where there is potentially overpaid or underpaid tax. It also needs to improve its collection rate for tax credits debt, which is substantially lower than that for tax debts.”

The figures surrounding these errors relate to approximately £3 billion owed to the taxman and a further £1.4 billion owed to taxpayers. Of course, the question on everyone’s lips is how this could actually happen.

It is the PAYE system that is the issue. It was introduced was back in 1944 and the business processes have not been altered since. HMRC have admitted these processes have to change and have, therefore, launched a consultation, which they are hoping will lead to the introduction of Real Time Information. This would mean that they received instantaneous information from employers instead of collating information once per year. Effectively this would save the taxpayer, the employer and HMRC valuable time and money. It should also reduce errors and could possibly lead to the abolition of the P45/46 system.

There has been fear across the country this week as the news broke that six million taxpayers across the UK have underpaid tax thanks to an HMRC PAYE error. It is expected that those affected will have to pay HMRC between £1400 and £5000 over a specified time period.

The first letters arrived on doorsteps on Tuesday and, while these were not demands for payment, they have opened up that dialogue between the taxpayer and HMRC who will be looking to recoup al lost taxes even though the taxpayer is unlikely to have been at fault.

In actual fact, the fault lies with the new PAYE computer system which has been responsible for a total of £2 billion in underpaid taxes. Of course, there is a silver lining though. It is believed that there are around 4 million British taxpayers who will be in for a pleasant surprise when they receive a letter stating that they have overpaid their taxes.

Everyone from accountants to HMRC have been commenting on this blunder over the past week but things have now taken another turn. Seemingly bowing to pressure from the public, it has been announced that around 1 million taxpayers who have underpaid will actually have this debt written off. This applies to debts up to £300. Others who owe more than £300 will have the ability to pay back the underpayment over a period of up to three years. There is a catch, however, since the debt will accrue a 3% interest rate over this period.

The ‘Regional Employer NICs Holiday for New Businesses’ scheme has come into force in some areas across the UK. The Forum of Private Businesses has welcomed this scheme, however they believe that the scheme does not go far enough if the end aim is economic recovery.

This scheme allows start-ups in Scotland, Northern Ireland, Wales, the North East, North West, Yorkshire and the Humber, South West and West Midlands to have an NIC holiday for their first ten employees for the whole year.

However, the government has also announced extensive public sector cuts and have confessed that they are looking to the private sector to develop job opportunities and economic growth over the coming years. As such, the FPB believes that there should be further tax incentives as disproportionate tax could threaten businesses rather than supporting them to thrive.

FPB chief executive Phil Orford commented: “For years small business taxation has steadily increased, so this reduction in NI for some firms has to be welcomed. However, if the Government is serious about creating conditions for real economic recovery based on strong small business growth, it needs to introduce even bolder tax policies.

He continued: “Given the significant threats to cash flow and business growth from issues such as a lack of bank finance and increasing late payments, recruitment is likely to be slow during the first 12 months for many new firms. The scheme should be available for a longer period than just the first year they are in business.”

The UK computer skills council has found that temporary and contract IT workers are more in demand than permanent IT employees. Reporting on the first quarter, e-skills UK stated that there was a 10% increase in demand for IT contractors during this period while demand for permanent IT workers only grew by 4%.

This data is based primarily on IT services that are based within London and the South. The report suggests that the increased opportunity for IT contractors comes courtesy of the financial services sector and the electronics industry. This has also resulted in an increased hourly rate for IT contractors in these sectors as the increased demand has pushed pay rates upwards in the region of 3% between the months of October 2009 and March 2010.

However, the average contractor who has seen a rise in income is really only better off by about 1.3% in real terms. E-skills stated that while many job boards are showing large wage increases, “an overall increase in ‘real pay’ has yet to materialise.”

With pay linked so closely to demand, IT contractors who are proficient in SMS, Prince Exchange, Windows NT, VPN and Windows 2000 are unlikely to see an upwards change in their pay rates in the foreseeable future. On the flip side, contractors who are skilled in 4GL, SCOM, CGI and CAM are likely to see a massive increase in demand and a subsequent rise in the rates they can charge.

Just yesterday we reported on the next wave of IT job cuts announced by RBS, now we must report on the £800 million which the government must cut from its outsourced services and IT suppliers.

Negotiations began back in July but this week, representatives from the public sector’s nineteen biggest suppliers will meet to hammer out the details of their new contracts. These companies include IBM, Serco, BT and Capita. Francis Maude, cabinet office minister, will chair the meeting. He could possibly inform these companies that they must take a hit on profits in the short term.

The public sector has aimed to reduce the costs of many of their contracts by shrinking the services or ‘taking costs out’. They are aiming to retain the necessary services these companies provide while ceasing payment on non-necessary extras. Suppliers who have considered themselves in a privileged position just by retaining these contracts have accepted this move. They believe it means they are best placed for future public service contracts elsewhere. Besides, the government has also looked to the suppliers for ideas on how to cut costs during the tendering process.

Individuals and businesses had the opportunity to bid via an HM Treasury web page. One of the 60,000 replies received so far reads: “There should be a renegotiation of IT contracts across the board. They are poor with regards to their costings matrix and rates charged. Procurement processes should also be made easier so more suppliers can get on to the roster and fairer competition can be put into play. The process is incredibly laborious…government is not getting the best IT suppliers coming through. IT is a very fluid industry and suppliers and their abilities change”.

One thing is for sure; the effect of the public sector budget cuts is likely to have far reaching repercussions over the foreseeable future.

It has emerged that the Royal Bank of Scotland has plans to cut 3,500 jobs within its technology services and business operations. The individuals affected by these cuts will be full time IT workers as well as IT contractors. It is expected that 2,500 individuals within the business services division will lose their jobs whereas 1,000 IT workers in technology services will go.

These cuts are due in 2012. RBS have already axed 9,000 jobs back in April this year and 500 job cuts have already been announced in the wealth management section, which will come into force in June.

Contractor UK spoke to the RBS spokesperson about the announced cuts and, in particular, how they will affect contractors currently working there and the opportunities for contractors with the bank in the future. The spokesperson confirmed that at the moment there is no temporary hire freeze. However, they did say that they are committed to protecting their permanent employees and have, therefore, been reducing the number of contractors they work with.

Speaking about the job cuts, an RBS statement read: “Having to cut jobs is the most difficult part of our work to rebuild RBS and repay taxpayers for their support. We continue to make efficiencies across our business and adjust our plans in line with the divestments we have been required to make by the EU.”

However, an additional 500 IT jobs are also set to be moved offshore to India, the Far East and the USA.

The spokesperson concluded: “We continue to move roles between countries including roles coming to the UK, and roles moving elsewhere, so as to maximise our efficiency and global capacity.”

Only yesterday we reported on the possible lack of prospects facing umbrella company contractors due to cuts in public sector funding. Chief executive of Hays, Alistair Cox, suggested there would be further opportunities for contractors within the private sector if the government extended their NIC relief.

While Cox accepted that this was unlikely due to the effect on the public purse, the NIC holiday announced in the Emergency Budget for start up businesses is due to commence on 6^th September. However, there have been concerns that the scheme will fail to make an impact in the areas most in need of the relief.

The scheme is only open to start ups that began trading between 22^nd June 2010 and the 5^th September 2013. They must be located outside Greater London, the South East and the UK’s Eastern regions to receive the exemption from national insurance contributions in their first year.

However, these conditions have been met with some criticism. Accountants UHY Hacker Young stated that the excluded areas actually host some of the most deprived localities in the UK. They will therefore miss out on this vital support.

UHY Partner, Roy Maugham, stated: “By restricting the scheme to regions outside London and the South East, the government is denying invaluable NICs savings to many of the businesses that would need them the most.”

On the contrary, the British Chamber of Commerce has welcomed the scheme stating that it is only workable when it is specific to certain regions. David Frost, BCC Director General commented: “There’s limited money and we need to stimulate growth and employment in the Midlands and the North. We can see the real benefit of targeting.”