UK IT contractor rates soar into 2007

Business has learnt IT freelancers must be paid more this year – a warning that contractors and consultants will use to pocket "inflation-busting pay hikes" in the coming months.

Daily rates are increasing across a broad range of technologies, with pay in public and private sectors already up 3.1% and 4% on 2006, recruiters told Contractor UK yesterday.

Yet IT contractors' strong sense of self-worth has convinced the majority that they deserve even more – a premium pay rise of 10%, says a poll by accountancy firm JSA.

Excluding demand from Finance and e-Gov clients, its chief executive, Barry Roback, expects freelance rates to come under pressure when managed service firms are hit in April.

He said: "This will inevitably lead to demands for higher gross rates, in order to leave contractors in the same net position, as happened after the introduction of IR35.

"One way or another, end-users are going to be asked to pay more for the services of IT contractors than they did in 2006."

A third of UK IT contractors expect "inflation-busting pay hikes" of 15% in the coming months, according to JSA's poll, which is based on interviews with 600 of its members.

Responding to the news, recruitment firm Hudson told CUK that the hottest IT skills are Java J2EE, VB.Net, C#, LAMP Technologies and Data-warehousing. However the firm said it's less certain of 15% pay increases.

"We expect to see continued increases in contractor rates in 2007, whether these can reach the heady heights of 15% remains to be seen," said Phil Clarke, managing director of the firm's IT & Telecoms division.

"With average 4% increases across the private sector and 3.1% in the public sector it would appear only those in high demand will be able to command double digit increases."

The outlook suggests only IT freelancers with the top five in-demand skills are likely to earn the hefty premiums some candidates expect.

The agency said: "In these hot areas, rates are on the increase and experienced contractors with the skills that clients are demanding can be bullish, demand more money and in the main; they will get it."

Newcomers to IT contracting can also command top rates, but they need to be available for work immediately, and should expect a lower rate for the first six months, a spokesman said.

Overall, Hudson expects the contract market to remain stable in 2007: it will be defined by slightly less spending in the public sector, amid stronger hiring intentions among private firms.

"Experienced contract developers that have recently had training on one of the hot skills, would also be able to command good rates," the firm said in a statement.

"But again the first contract using the newly acquired skills would probably be at a lower rate initially."

In support of the wider predictions, and echoing a recent report by Giant plc, Fiona Czerniawska, director of the MCA's thinktank, says Finance undoubtedly holds the best opportunities for IT consultants during 2007.

In line with the outlook for contractors, she said the most lucrative placements are likely to be reserved for a narrow pool of IT professionals.

"There is a constant level of high demand for good project managers, especially those capable of running very big types of programmes that we're seeing in the public sector and in some private organisations too.

"I've not heard clients talk about a shortage of skills, but they maybe talking about the difficulty in finding the small number of IT professionals capable of running their very big projects," Ms Czerniawska said yesterday.

Many end-users, such as City banks, have deferred expenditure on large IT units for the last two years in wake of regulatory changes, "but there's a limit to how long they can keep running these antiquated systems."

"They will take a lot of work and upheaval to replace," she added, "but I think we're now starting to see the first signs that companies are willing to grasp the nettle."

Among the Management Consultancies Association's (MCA) members, there is "less talk" about e-Gov, but the drive towards e-services that are efficient and citizen-centric remains firmly in tact.

However it's not entirely plain sailing for temporary IT professionals over the coming months, particular in light of bumpy economic forecasts for the UK and the US.

"Our interviews with IT and management consulting firms [in the UK] show most are reasonably confident about 2007," Ms Czerniawska said, reflecting on the MCA's members, comprised of firms with at least 10 consultants.

"They are aware that the economic outlook for the US is less certain, but the last time the US economy had a dip that affected the consulting/contractor market, the UK didn't suffer as much as the US did. So the saying, 'America sneezes, Britain catches a cold' doesn't quite apply to UK consultants or contractors.

"But when there is an economic downturn, I think budgets for consultants are one of the first to be hit. Many people in the consulting sector expect banks, and others in Financial Services, will need to make savings over the coming months, and certainly trimming spend on consultants will help them achieve some of those savings.

"Cutting spend on consultants therefore appears quite high up the agenda for 2007; firms often see consultancy spend as an expensive and highly visible monetary resource."

Asked yesterday about the cash-rich future for IT freelancers, one City recruiter reflected: "Some areas of IT contracting are being expanding with first time contractors… normally this would lead to rates falling as supply outstrips demand, but we haven't seen this happening."

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