The UK officially entered recession last week after two consecutive quarters of economic decline. With much focus on the ensuing jobs crisis as one in three firms plans to make redundancies by October, figures from the latest IPSE confidence index show that the contracting sector has also succumbed to a significant slump.
The latest report shows that the average contractor suffered a downtime of almost 50%, where they were benched for five-and-a-half weeks out of 13 without work. The great decline in utilisation, alongside a slight fall in day rates, led to an average 25% drop in quarterly earnings, from £20,821 in Q1 2020 to £15,709 in Q2.
A breakdown reveals that it’s those at the top end of the sector that have been most affected. Contractors who work as managers, directors and senior officials suffered a 15% rate drop (from £584 to £498), and were on the bench most (49% of the quarter or 6.3 weeks). This marks the lowest level of quarterly contractor earnings recorded since 2014 when the IPSE surveys began.
It also marks a second consecutive quarter of negative growth in contractor earnings, bringing the sector into recession. This isn’t surprising considering the impact of the pandemic on the business sector as a whole. However, many contractors have had to sit out their time on the bench without any government support, delivering a particularly hard blow to the sector.
There’s also great uncertainty about how long the recession might last, with the threat of a second wave of the virus in the Autumn. Many contractors are having to rely on savings to make up the shortfall in their earnings, but few have enough funds to see them through a second lockdown. In addition to this, impending IR35 reform next April is already creating additional problems for limited company contractors.
It is not surprising freelancers’ confidence in their business over the next 12 months is drastically low. A new study by a leading contractor website has also highlighted the detrimental effect of COVID-19 on contractors’ mental health. There’s a strong feeling of having been badly let down by the Government, with almost 70% of contractors indicating that they didn’t feel their interests were being considered.
The double impact of lockdown and IR35 have taken contractor stress levels to a worrying high, with 30% saying that anxiety has affected their ability to work. Although the off-payroll changes will go ahead next year, the IPSE appealed to the government to ensure contractors have the support they need in the event of a second wave of the virus.
While the recession threatens to bite all sectors, hiring is picking up in areas of demand such as IT, finance, online education and healthcare. Contractors who are experiencing sustained periods without work in their industry should consider recycling their skills in a different area of the market. An online learning course could also help to boost your skills and fill in any gaps to make you ‘market ready’. For some of the latest permanent and temporary jobs listings read our article here, or learn about the boom in renewables that’s creating opportunities for energy contractors.
If you’ve been affected by the Off-Payroll reforms, or if you’re unsure about your employment status, ContactingWise can help you make sense of your options. If you’re starting a new contract, we have a range of hassle-free services that can help you set up a fast and efficient payroll. To talk to a member of our team, call: 0203 642 8679