I ride my push bike a lot and between the pain of hill climbs or high intensity intervals a lot of thoughts slosh between my conscious and subconscious mind. This week it was an issue I picked up about the impact of the government's changes to part of income tax rules, and liability. For the moment this affects contractors working under Public Service Companies (PSCs) for the public sector.
So, tax, liability, PSCs and the public sector, it was after all a grey morning! But bear with me...
The tax changes can best be summarised as the client becoming liable for the contractors income tax as if they were an employee, so that nullifies the tax "efficiency" of PSCs for public sector work. Here's more detail on the changes.
My first thought was surprise at the number of PSCs serving the public sector. The estimate is some 26,000 nationally, and whilst I'm sure there are many valid reasons for establishing a PSC a whiff of tax avoidance is as hard to ignore, I'm sure others will put me right there.
If a survey of PSCs holds true then some 50% of them will leave the public sector as a result of the likely tax changes. This will lead to a significant contraction in skills available to the sector and because there is still, quite rightly in my opinion, demand for interim staff, fewer operators will lead to higher day rates and less choice for clients.
On the face of it, at Renaisi we might be happy about less competition in one of our business areas and given our social outlook we might also be happy about there being fewer PSCs. However, I strongly doubt that many individual contractors will actually leave the public sector market. I'd expect many, particularly those with technical skills, to move to the large corporate consultancies who'll simply apply their margin to the individual's income expectations.
So, on top of the negative impact of higher cost and less choice the public sector will most likely end up with the triple whammy of hiring the same staff who'll now be operating from within the more systematised corporate offer of the large consultancies.
My final thought on this was that this final impact was a big concern for me. Whilst this corporate offer arguably works well for significant structural or system change I believe it is insufficient for many circumstances. For the kind of work we, and our network of associates, do for local authorities I know that delivery needs to be sensitive to the social and economic context of the organisation, the place and the communities. So, whilst the public sector will lose here so could the businesses and residents in the places we're all trying to improve.
Half of all public PSCs to quit over IR35 change