IFS report: Lack of vacancies for UK’s highly skilled. Is IR35 partly to blame?

By Katherine Steiner-Dicks Last updated Sep 28, 2021

Xiaowei Xu Senior Research Economist at IFS

If you are a highly skilled contractor or freelancer looking for work, you may find the process discouraging due to the limited number of vacancies. A new report confirms the trend.

‘While prominent stories about rising vacancies and labour shortages in certain areas are real, we should not be misled into thinking that worker power is back.”
Xiaowei Xu, a Senior Research Economist at IFS

Despite overall job vacancies climbing above pre-pandemic levels:

For about a quarter of the workforce (8 million people), vacancies in occupations relevant to them remain at least 10% below pre-pandemic levels.
The surge in total vacancies has in fact been driven entirely by low-paying occupations, in which new job openings are around 20% higher than pre-pandemic.
Vacancies in mid- and high-paying occupations are still no higher than pre-pandemic.
The outlook for jobseekers is tougher still when you account for the fact that there are more people looking for new work and hence competing for these vacancies.
IFS estimates that two-thirds of unemployed jobseekers are from occupations in which the competition for jobs is at least 10% higher than it was prior to the pandemic.

These are among the findings of new IFS research funded by the Economic and Social Research Council. The research uses data on workers and job seekers from the Labour Force Survey, and online job vacancy data from Adzuna, up to and including June 2021.

‘While prominent stories about rising vacancies and labour shortages in certain areas are real, we should not be misled into thinking that worker power is back,” said Xu, a Senior Research Economist at IFS and an author of the report.

The economist says that the surge in aggregate vacancies in recent months has been driven by a small set of relatively modestly-paid occupations.

“For people in many lines of work, new job opportunities remain well below their pre-pandemic level. And it is not just the number of job openings that matters, but how many people are competing for them. After all the disruption of the past year, there are more people looking for work than before. Most job seekers will therefore find job competition to be unusually stiff,” said Xu.

Kaler Pilgrim, founder and chief of brand partnerships at Futureheads, a recruitment agency for digital roles, said in an article published by People Management that the firm initially thought that IR35 rules would only affect 15% of their contractors but has impacted more than expected. The other problem for recruiters in the contractor space is clients are increasingly bringing contractors onto their payrolls, which in turn decreases contractor roles on the whole.

However, with Network Rail, under the supervision of The Department for Transport, reversing its blanket ban on contractors and now engaging more than 70 % of contractors outside IR35, there is hope other companies in the private and public sectors will follow a similar path.

IR35: Key lessons to be learned from 100,000 HGV driver shortfall

Qdos CEO, Seb Maley, who specialises in IR35 matters and insurance, says the HGV driver crisis has many elements but in part could have been avoided.

“This is the first real high profile example of what not to do when it comes to managing IR35 reform, along with its wide-reaching economic impact. Far too many businesses that once engaged contract HGV drivers as self-employed workers have handed them an ultimatum – work on the payroll or have your contract cancelled. This has led to an exodus of drivers,” said Maley.

“Give genuinely self-employed people no option but to work as employees or pay tax as an employee, and the chances are, they’ll stop working with you. There are other factors contributing to the UK’s shortage of HGV drivers – ones perhaps less easily managed – but by rethinking needlessly risk-averse IR35 decisions, firms would stand a much better chance of retaining the services of HGV drivers.

“The HGV crisis won’t be solved on IR35 alone, but through sound management, businesses could definitely alleviate the issues they’re experiencing and in turn, the problems the UK is facing as a result of this shortage.

“Other industries, whether financial services, manufacturing or energy, should take note of the current situation and ensure they have the processes in place to manage IR35 reform compliantly and continue engaging contract workers, who hold the key to labour market flexibility,” he said.

Taxes and IR35 contributing to instability of contractor earnings

Higher taxes are just some of the hurdles contractors and freelancers are at odds with, as Andy Chamberlain, Director of Policy at IPSE (the Association of Independent Professionals and the Self-Employed), explains:

“After the financial damage of the pandemic, exclusion from support and the changes to IR35 taxation, this new tax hike on dividends will make it almost impossible for freelancers to continue to work through a limited company. To limited company directors – from project managers to graphic designers – this is salt in a year of wounds.

“The increase in National Insurance for sole traders will also be deeply damaging to the wider self-employed sector. While social care is of course crucial for the country, after the financial devastation of the pandemic, it is simply not right that hard-working and often struggling people – particularly the scarred self-employed sector – should be paying for it. These changes will squeeze the battered self-employed community – limited companies and sole traders alike.”