RBS faces IT skills exodus following 10% rate cut

Royal Bank of Scotland was last night said to be facing a technology skills “exodus” following its decision to unilaterally impose a 10 per cent pay reduction on its freelance IT professionals.

Although similar ‘take it or leave’ rate cuts have been accepted by a “high” proportion of freelancers in the public sector, a double-digit percentage of RBS’s 800 or so UK IT contractors have rejected the bank's reduction.

Sources also told ContractorUK that while some IT contractors have signalled acceptance in order to retain their contract, they plan to ditch it upon finding another one outside of RBS.

“Early indications are that some [IT contractors] will not take the imposed decrease and will move on elsewhere,” a senior recruiter specialising in financial IT contracts said yesterday.

“With demand as it is, most [who choose not to accept the reduction] will find new roles...this is likely to impact how RBS can deliver IT programmes going forward.”

Chris Bryce, chief executive of contractors’ body PCG agreed. "Non-targeted, blanket reductions are more likely to lead to a skills exodus than a cost saving," he said.

"Those with the best experience, skills and talent simply move elsewhere. Banks may feel that if freelancers decide to leave as a result of the rate cut they will be able to refill those roles but these will not be like-for-like replacements."

Mr Bryce, an ex-contractor himself, adds that clients who cut IT rates mid-contract run the risk of losing experienced techies, eroding their skills-base and harming their IT capabilities.

He therefore disputes that unilateral rate cuts, in force at Barclays and now RBS, are a viable way for banks to cut costs, as he says the initial saving gets wiped out over the long-term.

But RBS wants to save £1bn by the end of the year, and hopes the 10% rate cut – impacting all of the bank’s 11,000 or so temporary staff – will contribute up to £65m, City AM reported.

Speaking to CUK, a spokesman for RBS hinted that cost savings had indeed played a part in its decision, which was announced last Thursday -- the day before the long Easter weekend.

The spokesman said: “We continually keep costs under review, in reaching this decision we have taken into consideration market day rates and those across the banking industry.”

But contractors’ pay won’t be reviewed. In fact, RBS’s recruiters have told affected IT freelancers that “this will be a permanent reduction in rate for 2014, as rate increases will not be considered.”

“If you do not wish to accept the rate reduction detailed above, please email ‘Non Acceptance’”, adds a memo from the agencies to affected IT contractors.

The memo continues: “RBS will be informed and given the opportunity to review your rationale. The default position, however, is that in this instance your contract termination will be processed”.

Due to the timing of when the 10% reduction takes effect being carefully matched to each individual contractor’s notice period, a contracts lawyer says claims are unlikely to succeed.

Roger Sinclair, a legal consultant at Egos explained: “Provided the agency gives any notice required by / to terminate the contract, there would not generally be any basis for challenge.”

One RBS IT contractor hit by the cut sounded dismayed: “I don't know about others, but it's ruined my holiday weekend.”

Another reflected: “Most people I spoke to are accepting, however getting out at the earliest opportunity. So much for them [RBS] wanting to have the correctly skilled staff …No wonder they live with IT systems that have been neglected for decades.”

But Michael Bennett, a director of IT staffing firm ReThink Recruitment offered them some reassurance. He told CUK: “RBS’s announced reduction goes against what we are seeing in the market, as [IT contractors’] demand and rates are holding up.

“Indeed, I’m not aware of any other company looking for such an across the board rate reduction; actually, many are increasing rates.”

Under the terms of RBS’s pay ultimatum, temporary workers in IT are not affected if their rate is less than £250 a day or if they are supplied by consultancies.

Editor’s Note: Further Reading –

Beating the IT contract crunch: i) client cuts

Contractors’ Questions: What to do if my rate gets cut?

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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