Contract Delivery Manager
User Experience & Design, Technology, Marketing & Agency
View profileIn October 2024, Rachel Reeves delivered the first budget from a Labour government in 14 years – how will that affect the UK Contract Recruitment Market? Ben, our Contract Delivery Manager, shares his thoughts:
Employer’s NI Increase
The rate of employer’s NI contributions (NICs) will increase by 1.2 percentage points to 15% from April 2025. Employer’s will also start to pay NICs on employee’s earnings from £5,000 instead of the current £9,100 threshold. Contractors that operate “Outside IR35” via a limited company or as a freelance ‘sole trader’, are responsible for their own Employer’s NI. When using a limited company – the Contractor’s Employer’s NI bill tends to be relatively low, as they will be paying Corporation Tax on dividends – as well as their personal deductions on the remaining, (lower) salary. Therefore, it is quite possible that the extra cost of hiring a permanent employee, could increase a client’s appetite for hiring contractors “Outside IR35”.
Day Rates
Over the last 2 years, day rates have taken a big hit – in our experience we are looking at an average of 20-30% reduction across the board – a significant correction. This budget essentially increases the cost of Employers hiring permanent staff & Labour’s Employment Bill is due to be implemented in the next 100 days. This bill introduces major reforms to unfair dismissal, redundancy rights, harassment protection and more. These changes, whilst welcomed, will also directly increase the financial & administrative cost of having a permanent employee and that could trickle down, into an overall uptick in contractor day rates.
Invest, Invest, Invest
Broadly speaking, Reeves’ plan is to invest heavily in Public Services, the NHS & Green Tech/Sustainability to boost economic growth in the UK. From a contract recruitment perspective – large, well-funded government projects (whilst not always the most exciting) tend to sap up huge pools of contractor talent. In the past– this has led to supply issues in the contract market. Once the government project tap is fully turned on, it could result in a recruitment frenzy. At the minute though, there is more than enough slack in the contract market to cope – but that may not be the case this time next year.
Major Umbrella Company Changes
From April 2026, legislation will be introduced that will shift the responsibility for Pay As You Earn (PAYE) tax, from the umbrella company to the recruitment agency supplying the worker. In cases where no agency is involved, the end client will bear the responsibility. Firstly, I expect this to almost entirely end clients hiring contractors directly, then having them payrolled by an umbrella company (without using an agency). Secondly it will make agencies think very carefully about which umbrella companies they work with – expect tight preferred supplier lists. And thirdly, the current industry belief that – there is little or no financial risk, if clients put all their contractors “Inside IR35” via an umbrella company – will be shattered. This is another potential factor that might make hiring an “Outside” contractor more appealing.
Interest Rates
It’s difficult to say exactly what the impact of higher interest rates has been on the contract recruitment market. However, the increased cost of borrowing for businesses, seems to have weighed on day rates and cash flow generally. Writing this in the immediate aftermath – it seems that the financial markets see this budget as one that leads to “higher for longer” interest rates. This could continue to drag contractor day rates down. However, if the backdrop is one of a growing economy with plenty of investment and a path to eventual return to a BOE rate sub 4% by 2026 – interest rates may not be as significant factor on contract recruitment, as they were in 2023 & 2024.
So, is the 2024 budget good news for UK contractors?
On the face of it, there are areas of both concern and optimism for contractors operating in the UK. Could the significant financial increases and administrative burden of employing people permanently, kickstart the contract market following a subdued last two years? Will major public sector investment drive demand, to the point of creating a supply issue? Will new risks, associated with hiring “Inside” via an umbrella, make clients reconsider their position on “Outside IR35”? I would say that whilst there are clear downside risks & ultimately nobody can say for certain but 2025 could mark the start of a major recovery for the UK contract recruitment market.