Changes to self-employment tax laws have had a "seriously damaging effect" in the NHS and across the public sector, according to new research.
The study by freelancer body IPSE and the CIPD (the professional body for HR and people development) interviewed 867 contractors and 115 hiring managers in the public sector about the changes to the IR35 tax rules for contractors.
Half (51%) of public sector hiring managers said they had lost skilled contractors as a direct result of the changes; and 71% said they were now struggling to hold on to their contractors.
The study found that 40% of independent contractors working in the public sector said they had witnessed project delays and 35% said they had seen costs rise since the changes were introduced. Three-quarters (75%) of hiring managers said it is now harder to recruit contractors.
Changes to IR35 rules have added a significant administrative burden across the public sector. Eight in ten (80%) hiring managers said they had seen a substantial increase in the workload involved in engaging and paying contractors.
"These figures … confirm what we have been hearing anecdotally for a long time: these changes just have not worked," said Chris Bryce, IPSE's ceo. "In fact, they've caused serious damage right across the public sector, stalling major TfL projects and even contributing to the NHS staffing crisis."
Charles Cotton, senior performance and reward adviser at the CIPD, said: "Our research suggests that the way the IR35 tax changes have been implemented has had damaging unintended consequences for the public sector. HR professionals have said they are finding it harder to recruit and retain skilled contractors, which is contributing to project cost rises, projects being delayed and, in some cases, projects even being cancelled."
IPSE is now calling on the Government to halt the extension of IR35 changes to the private sector. Chris Bryce said: "The public sector is only a fraction of the size of the private sector. If the Government, against all reason, goes ahead with its plan to extend the changes to IR35 there, the consequences will be far worse. It would be nothing short of a disaster. For the good of the self-employed, for the good of businesses across the UK, and for the good of the economy, the Government must take heed and reverse these dangerous, reckless plans."