Politics and Policies a Major Threat to British Tech
The British tech industry is under attack. Not from overseas competitors or a lack of innovation, but from within.
The politics and policies of our country have the potential to wreak havoc on all aspects of technology. Specifically, I’m talking about IR35 and Brexit. In an industry where approximately 40 percent of workers are contractors, and an estimated one in three are immigrants, the implications of these are far reaching, potentially impacting innovation, salaries and even security.
To better understand the potential effects of both, we need to understand the risks associated with each.
Shortly after the vote to leave on June 23rd, Harvey Nash conducted a survey of 500 business leaders across the country asking how they believed Brexit would impact their companies. It showed that while almost half of businesses expected to see a drop in profits over the next five years, it was ‘business as usual’ for the vast majority, with less than a quarter planning any sort of recruitment freeze and a whopping 62% actually considering it an opportunity for the UK to innovate and reshape its relationship with the world.
Five months on and the sky hasn’t fallen. The Pound may have taken a hit against the likes of the Euro and Dollar, but economic growth remains strong, helped in no small way by the country’s burgeoning tech industry, as was reported by Computer Weekly in October.
Furthermore, the recent High Court ruling that Parliament must vote on triggering Article 50 has eased fears of what has been dubbed a ‘Hard Brexit’.
While this paints a rosy picture, we’re not out of the woods yet and a Hard Brexit, where Government’s insistence on controlling immigration trumps staying in the single market, remains a very real possibility. Government is set to appeal the High Court decision at the Supreme Court in December and, if the papers are to be believed, is already drawing up bills to prevent MPs from holding it up should they lose.
So why would a Hard Brexit be bad for the tech industry?
1. The Talent Shortfall
Britain is already struggling to attract enough skilled tech talent to meet the insatiable appetite of the industry. Earlier in the year our CIO report showed that almost two thirds of CIOs felt the technology skills shortage was hindering their organisation from keeping up with the pace of change.
To meet the demand, we’ve had to cast the net far and wide, relying heavily on our European neighbours to fill the gap. The latest Harvey Nash Technology survey shows that one-in-three tech professionals is an immigrant.
A hard-line on immigration and the free movement of people within the EU is almost certain to have a domino effect on the tech industry, underpinned by one of the most basic economic principles – supply vs demand. It goes a little something like this:
If a Hard Brexit is enforced and access to the European talent pool is cut off, demand for essential tech skills will rise. The rise in demand will result in higher remuneration and rates being offered to those skilled professionals, effectively pricing smaller companies out of the market, while at the same time grinding innovation down to a snail’s pace. Even if we disregard a lack of access to the single market, these two factors make the UK considerably less attractive to investors and multinationals.
2. Digital Single Market Initiative
They say two heads are better than one. If you support this notion, then imagine what can be done with the minds of 1.7 million researchers and 70 million science and technology professionals. Without going into too much detail, the Digital Single Market Initiative is about the digitisation of industry, and is expected to create approximately £40 billion of public and private investments, while creating a digital environment for researchers and tech professionals to store data, share ideas and obtain advice.
It hasn’t received nearly as much attention as it deserves. Departure from the EU could slam the door shut in Britain’s face, again costing us investment and slowing innovation.
IR35 has become a massive headache for public sector organisations, agencies and contractors. However, with most experts predicting the changes in the regulation will be applied to the private sector in the coming years, those in technology, where four in 10 workers are contractors, need to pay close attention.
The issue lies in the fact that from 2017, the responsibility for determining whether a contractor falls in- or outside IR35 will sit with the company that pays the contractor – namely the public sector organisation or the agency they were recruited through – with hefty fines being enforced for non-compliance.
The ambiguity of the regulation has left public sector organisations unsure how to determine whether a contractor falls in- or outside IR35. There is a significant risk that in order to ensure compliance, a blanket approach of forcing contractors to terminate their contracts or become ’employees’. This is exactly what happened at Ministry of Defence agency, the UK Hydrographic Office (UKHO), resulting in a mass walkout of contractors.
Should the UKHO’s approach be adopted across the public sector we can expect to see:
- An exodus of contractors from the public to private sector, stalling countless projects in the process. But only in the short term. . As I mentioned earlier, the plan seems to be that the private sector will fall under the new rules in the not-too-distant future.
- A significant rise in salaries. Contractors will offset the cost of paying higher tax and NICs by demanding higher salaries. This means a sharp rise in public sector spending and reallocation of budgets that were intended for innovation and upgrading of systems.
Should HMRC proceed as expected and implement IR35 in the private sector, without overcoming the existing issues, then we face a far greater issue. Faced with no option but to become an employee, it’s likely many of the UK’s contractors will seek pastures greener, such as Dublin, Paris or Frankfurt, where they can continue to operate as independent contractors. In an industry where such skills are already so limited, Britain cannot afford an outflow of talent, particularly if a Hard Brexit comes to fruition.
Forewarned is Forearmed
When it comes to Brexit, there is still not enough clarity to formulate a definitive plan. Much will depend on the deal Government can negotiate with our European counterparts. However, that should not prevent CIOs and tech managers from investigating their various options. Offshoring continues to gain traction with businesses keen to meet their innovation and ICT needs. This may become an essential practice in the face of a Hard Brexit, where access to highly talented technologists is required at short notice and for long term projects.
When it comes to IR35, however, there is plenty businesses can do to keep on the right side of HMRC.
1. Conduct a Contract Audit
The best place to start is with an audit of all your employment contracts. This will give you a clear understanding of the lay of the land, identify where your company is exposed and even highlight areas where cost savings could be made with your contractors. Over the past year, Harvey Nash Recruitment Solution has conducted such audits for a wide variety of clients, revealing some startling gaps in their contractor management.
2. Engage with Statement of Work
A client should define its project-specific activities, deliverables and timelines for a vendor providing services to the client.
3. Ensure They’re Compliant
In situations where you have engaged a Limited company, it is good practice to ensure they are VAT registered, registered for all relevant taxes and their documentation is up-to-date. Copies of the Limited Company’s Certificate of Incorporation and VAT Registration should be obtained. The last thing you want is for a contractor, integral to a project, being shut down by revenue for failing to keep their taxes up-to-date. Requesting a tax clearance certificate and their right to work documentation can offer great peace of mind.
4. Bullet Proof Contract for Service
Make sure the contractor signs a contract for service. Before they do this, however, have your legal department go through the contract with a fine-tooth comb to ensure that there can be no confusion about the contractor’s employment status.
Battling Brexit and IR35, our tech industry is under considerable threat. Companies can act now to conform to IR35 and in light of Government uncertainty surrounding Brexit, they’re wise to tame one beast before the next one strikes.