Banking rate cuts: what the future holds for finance sector contractors

News that all the major banks would be cutting their IT contractor rates by an average of ten percent with immediate effect has sent a shockwave through the contractor industry that recently had been enjoying more buoyant rates.

It has been reported by a number of channels that contractor staff would be offered a 'take it or leave it' contract at the lower rate, reminiscent of similar rate cuts in 2008; and all with a backdrop of increasing job losses in every area of the financial services sector.

The banks of course won’t be drawn on their reasons for making the fresh wave of cuts, and whether these are permanent, but what is clear from anecdotal evidence is that the IT contracting landscape within the banking sector has rapidly changed since Giant reported a boost in contractor confidence in the finance sector in August.

At that time, the Giant survey showed contractors felt confident that their sector would continue to deliver job prospects over the next year with 32.6 per cent of IT contractors stating that the financial services sector will create the most IT jobs over the next 12 months, compared to 27.5 per cent this time last year.

In addition, the survey also found that a higher proportion of contractors are opting for higher hourly pay over long-term contracts, with 37.2 per cent prioritising higher hourly pay, compared to 34.8 per cent asked in the second quarter of last year.

However, the financial services sector has since the summer been rationalising, with IT staffing becoming a prime candidate for cost savings. This rapid change in fortune for IT contractors was supported by the findings from the Association of Professional Staffing Companies (APSCo) which reported that the hardest hit sectors are banking/insurance and IT, where the number of year-on year contractor vacancies fell by 34 per cent (from 3,181 to 2,088) and 27 per cent (from 19,328 to 14,175) respectively.

Ann Swain, Chief Executive of APSCo comments: “Contractors are always the first into and the first out of a downturn. Employers tend to cut back on contingent workers before they slice into their permanent workforce, so with joblessness rising again, we would expect contractors to be bearing a disproportionate number of those job losses.”

The banks have always used IT contractors as they offer a highly skilled workforce that is also flexible. This flexibility was cited by Daniel Mayo, Financial Services Practice Leader, Ovum: “What we have seen is that within the financial markets, the income of these companies has been quite volatile. The practical consequence of this has been that the banks for instance have been trying to make the cost base more flexible. And of course with contractors, they offer a quite effective way of achieving this.”

In addition, the IT projects that the banks have been managing will continue to offer placements for contractors, but as Ian Parrett,
 Marketing Manager EMEA & APAC
 HireRight outlines, new contracts will be much harder to come by: “The growth we did see was simply because there were a number of strategic projects within the banking IT sector that were ongoing. The employers are continuing to support these projects with contractors, but they are not looking at new projects that would expand their recruitment programs.”

With all of the major banks reducing IT contractor rates, the question now being asked is whether this is a continuing trend? Says Jamie Sears, Manager, Business Development and Client Management at SQ Computer Personnel, “Unlike previous instances of rate reductions over the past two to three years, the employment market is quite different currently and more candidates, both permanent and contract, are looking to move from their current employment/client and therefore I believe those institutions employing rate reductions would not wish to risk losing highly important skill sets.”

Ovum’s Daniel Mayo concluded: “If you do have a specific and highly specialised skill set, you will probably find that your market remains fairly buoyant. Whereas, more general skills won’t be in such great demand and will see the greatest pressure as the cost pressures increase moving into next year.” This view was also echoed by HireRight’s Ian Parrett: “What we can say at the moment when we talk to recruiters in the financial and banking sectors is that they are still recruiting, but this isn’t growing.”

The latest cuts in IT contractor rates may have been unexpected by some, but as rationalisation continues right across the financial services sector, the cuts are tangible evidence that the banking sector as a whole is continuing to look for cost saving opportunities. It remains to be seen whether the current rate reductions are just a general reaction, or the beginning of a trend.

Dave Howell