TfL blames IR35 changes for project delay

Transport for London has revealed “a significant number” of vital contractors to have deserted its operations as a result of changes to IR35 in the public sector.

The capital’s transport body explains that the losses mean a London Underground repair programme will now no longer be finished in time for November 2018, as internally forecast.

In fact, TfL says that updating old trains on the critical Bakerloo Line is going to take until April 2019, some five months later, because of skills shortages brought on by the IR35 reforms.

"A significant number of critical weld project employees left TfL as a result of IR35 -- a revised tax legislation affecting public sector contractors," TfL admits in a first-quarter investment programme report.

"We are currently working on mitigations to reduce the impact on the project."

The admission is significant. It represents the first time that a public sector body has admitted that its service to taxpayers will be adversely affected due to the off-payroll rules.

'Hugely worrying'

Warnings that public services would suffer thanks to the April rules have been issued by public sector bosses; HR leaders, contractor groups, accountants, recruiters and IR35 experts.

One of those experts, Seb Maley, yesterday sounded aghast that the warnings were not heeded by the government, and continue not to be heeded by HMRC.

“That HMRC adamantly denies any public sector skills shortages because of reform is hugely worrying, particularly when public sector organisations are beginning to speak out”.

Maley, the chief executive of Qdos Contractor, a specialist on IR35 status, also said: “When will HMRC admit the mistakes they’ve made with regards to IR35 reform?”

'Misinformation'

His question alludes to HMRC’s Jim Harra using an article on a workplace issues blog to dismiss claims of a “mass exodus” of contractors due to the April rules as “misinformation.”

Mr Harra, director-general of customer strategy at HMRC, also said it was “wrong to suggest that the public sector has significant recruitment gaps because of this reform.”

But the reform has been singled out by two recruitment firms as the cause of much less business in the public sector, which both the recruiters, Hays and Parity, specialise in.

It also caused half a dozen PSC contractors to signal their intention to quit TfL before April, once the transport body’s initial plan to impose a blanket ban on such workers was hatched.

'Leaving'

Although just one month later TfL relaxed the ban -- at the time, it was the first of its kind before it was copied by numerous public bodies, it seems it was too late.

“There are lots of leaving drinks taking place for…contractors [already and despite the relaxation],” one TfL contractor told ContractorUK at the time. “People are starting to go.”

Eight months later, and Mr Maley doesn’t think public sector hirers have learnt their lesson. “Blanket and inaccurate IR35 determinations will continue to force contractors from the public sector,” he warned last night.

“The success of vital public sector projects rest heavily on contractors. It’s therefore essential that accurate IR35 decisions are made. This will become all the more important should reform be extended to the private sector.”

'Reduced our reliance'

However, a statement by TfL on its IR35-induced project delays (it recently expected to complete the Bakerloo Line train overhaul by November 2019) implies that fewer temporary workers have actually sped up its delivery of services, not slowed it down.

Speaking to London's City AM, which claims TfL has cut its temporary workforce in half to save £3million a week, a TfL spokesperson said: “The original completion date for our project to overhaul Bakerloo Line trains was April 2020.

“Since then we have introduced a more intensive work programme and have reduced our reliance on agency staff. This means that the work is now scheduled to be completed by April 2019”.

Speaking to ContractorUK last night, TfL confirmed the statement as being accurate. However, it requested more time to answer other queries, including whether it plans to offer higher rates on ‘inside IR35’ roles in a bid to attract the skilled workers it has lost.