Contractors’ confidence stagnates, as Brexit and IR35 fears pervade
A bit more confidence in their ‘Ltd’ in the short-term, plus a bit more money in their pocket in the long-term, isn’t alleviating contractors of “challenging” conditions which may worsen.
In its new quarterly update, the Association of Independent Professionals and the Self-Employed showed that such a fragile, risky scenario hit contractors in the second quarter.
'Taking its toll'
But unveiling its new index for the April-to-June period last week, IPSE said “the cloud of Brexit uncertainty was clearly taking its toll” in Q1, and “still shows no signs of dispersing.”
So key measures of contractor health are unchanged -- “indicators are essentially on pause, waiting for something to give.” In other words, added IPSE, there is “pervasive stagnation.”
In fact, pay was virtually the same in Q2 following a 17% drop in Q1; the amount of contract work plateaued, and contractors’ 12-month economic outlook flickered from -38.5 to -38.0.
Even the strategies contractors said they would employ back in Q1 to boost their company are the same ones they are eyeing in Q2. And they feature in the very same order of priority.
'Bring the house down'
But far from a ‘no news is good news’ verdict, IPSE indicated that one foul move by the government on Brexit, or IR35 -- contractors’ other big impediment, could cause disaster.
“It feels as though a Brexit nudge in either direction may bring the house down,” IPSE cautioned, after describing its members’ economic confidence as “stuck in deep negative territory.”
“[And] recessions, it should also be remembered, tend to occur around once a decade, with the last in 2008. With so many question marks over the economy, it is difficult to predict where it – and freelancers’ confidence – will be by next quarter.”
Then, suggesting contractors’ economic and business confidence to be intertwined, the association said that standing at -6.7; the contractor sector itself narrowly avoided recession.
Much more positively in Q2, the three-month outlook by contractors for their individual businesses returned into the black, at a solid 3.5, up from –0.7 in Q1 and –1.8 in Q4 2018.
An additional boon is that despite contractors’ rates and quarterly earnings barely moving since January-March, they forecast their income as increasing by 6% over the next year.
But IPSE economic adviser Ryan Barnett had to talk of a “contradiction,” because it is over that same incoming 12 months that the contractors said they foresee the economy tanking (-6.7).
This 12-month period, in which private sector IR35 reform will hit, was probed for how contractors see their firm faring -- and that reading is firmly in the red too, worse than in Q1.
'Could get worse'
“There is still a risk that things could get worse,” cautioned Mr Barnett.
“[There may be] a tension freelancers feel towards the turbulent external business environment, which they attribute to the negative impact of government policies.
“Freelancers lay the blame directly on government actions, with Brexit and freelance-related fiscal and regulatory policies being cited as the main constraints on business performance.”
On ‘Brexit,’ IPSE said the delay is causing problems for contractors in financial services and manufacturing, as both sectors are highly exposed to the European Single Market.
On ‘tax policies relating to contractors,’ while this charts as only the third of the three tested-for drags on their business, it was an impediment to 57% of the sample, up from 55% in Q1.
“The next 12 months will be a challenging time for the freelance sector,” said the association, seeming to understate the consensus about the potentially huge impact of IR35 reform.
“In the past, freelancers were often able to overpower these [challenges] through their own business strategies. [However currently]…most freelancers expect their business performance [to] underperform current levels.”
Associate professional level contractors and “technical freelancers” emerged as the only exceptions, with a 12-month business confidence score of 12.4, suggesting they expect their business performance to improve “quite significantly” over the next year, IPSE said.