International recruitment organisation Hays has reported a four per cent contraction in quarterly net fee growth for Ireland and the UK. It has largely attributed the decrease to challenging market conditions in the public sector caused by new IR35 rules.

The overall picture for the company is nonetheless positive. Despite the weak performance of the UK and Ireland markets, Hays reported record takings for Q1 2017: net fee growth climbed by ten per cent overall, with continental Europe/Rest of World and Asia Pacific delivering an 18 per cent and 12 per cent rise respectively.

It seems that the tougher market conditions in the UK have been driven by uncertainty over Brexit and public sector IR35 changes, with the latter affecting thousands of contracting professionals working in public sector bodies (PSBs) via their own limited companies. Although Hays did not refer to Brexit directly, its results for London reveal a sharp contraction of eight per cent as “conditions remain challenging.”

This appears to be a reference to Brexit uncertainties, which certainly had an impact on the recruiter’s net fee growth in June 2016 directly after the referendum result.

Whereas fees from the private sector’s permanent market declined by one per cent in the UK, the public sector drove fees for temp hiring down by six per cent “primarily as a result of continued tough market conditions in the public sector, exacerbated by the uncertainties created by the recent implementations of the IR35 regulations.”

Meanwhile, the Chartered Institute for Personnel and Development (CIPD) published reports from recruiters last week showing that contracting professionals are already shunning further public sector engagements or making sizeable hikes to their fees as a direct result of the new IR35 rules.

IT contractors in particular are boycotting the public sector in large numbers, but the rule changes are also likely to affect nurses, social workers and engineers freelancing in PSBs.

Andrew James, MD of Michael Page Facilities Management, Property and Construction reported that many contracting professionals are requiring a 20 per cent rise on their previous day rates to compensate for the impact of IR35. He added: “For some organisations, this price hike has been too much.

“Indeed, we have also seen niche skillsets moving out of the public and into the private sector, a trend that will undoubtedly increase as time goes by. In line with this, many public sector organisations don’t have the budget to recruit permanently, and they’ve been left in a ‘catch 22’ situation without anyone filling the role.”

Colin Morley, Director of recruitment agency Harvey Nash, reported that a third of candidates are now declining contractor roles in PSBs, adding: “It’s been a real mess…we are not able to meet the demand coming through.”

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