IT contractor demand floundering despite Autumn Budget 2024

Demand for IT contractors fell in October 2024 to its lowest level since July 2022, REC figures show.

The figures mean IT contractor demand has not been lower since the economy tentatively reopened from covid 27 months ago.

Obtained by ContractorUK, the figures also show that IT skills demand on a contract basis fell in October for the third month in a row, to 42.8.

‘Sitting on their hands’

With growth occurring at 50.0, the score means tech contractor demand is both in the red and worsening (45.3 in Aug, 43.9 in Sep).

The Recruitment & Employment Confederation had hoped that Autumn Budget 2024 would stop employers “sitting on their hands”.

Chief executive Neil Carberry, who used the phrase last week, was referring to employers being put off recruitment until they had certainty about Labour’s plans.

‘Many Autumn Budget tax rises impact business’

But the budget appears to have fallen too late in the month (the 30th) to have had a positive, pre-emptive impact on hiring plans.

In addition, “many” of the £40billion in tax rises now unveiled by the chancellor ‘impact businesses,’ warns KPMG’s Jon Holt.

Firms therefore “need to be persuaded to invest,” says REC, as higher NMW and NICs, plus the Employment Rights Bill are “all causing concern.”

‘Visibility and stability’

But at least the new government’s plans are no longer causing uncertainty.

Alongside Thursday’s cut in interest rates (to 4.75%), uncertainty abating is the bright spot for the IT contractor jobs market.

Recruitment investor Mark Keegan reflected online: “Labour has a massive majority, so their five-year plan isn't going to change.

“So at least companies [now] have visibility and stability which will also help to fuel investment decisions.”

‘Flawed and unfathomable legislation’

The removal of uncertainty (merely by Rachel Reeves unveiling her statement) should reassure one IT contractor, Dave Carson.

He posted when IT contractor demand slipped deeper into negative territory in September:

“Once we've had the budget, I wonder what 'they' will be waiting on next. Christmas, I expect?

“Companies [in the UK appear to be] constantly under a cloud of uncertainty, imposed by flawed and unfathomable legislation.”

‘Interest rate cut by 0.25% points is good news’

Dean Penn, a recruitment compliance adviser, took to LinkedIn about the “good news” that the interest rate trend is “down.”

“[It] will help investment. [Although] unfortunately not at the pace predicted prior to the budget due to inflationary pressure.”

‘Glimmer of light, following dire conditions’

Boss at Scorpius TA, Penn added: “Companies [in my meetings] have been cautious but optimistic, so I feel we’re slowly turning the corner”.

An IT contractor ‘on the ground’ Nadine Drelaud, said much the same just last week, talking of a “glimmer of light at the end of the tunnel”.

But the former freelance techie for Google, PayPal and Microsoft, said the glimmer follows an extensive period of “dire”.

‘World of tech contracting has shifted dramatically’

Of her own three-page account on the grim conditions including why, in Drelaud’s experience, the number of applications per tech role has soared from 50 to 3,000, she wrote:

“The world of [IT] work and [technology] contracting as we know it has shifted dramatically.

“Doing the same things that worked pre-2022 [to land an IT contract] do not work anymore.

“Even being considered one of the best in the industry, doesn’t get you hired anymore.”

‘IT freelancing at its worst due to IR35 changes -- one in five say’

After offering a dozen tips for job-hopefuls feeling hopeless, Drelaud polled 441 of her followers about why IT freelancing is in the “worst state” ever.  

The biggest chunk of the respondents (41%) blamed “economic downturn;” 27% blamed “Brexit and poor govt policies” and 22% blamed “IR35 changes.”

“Uncertainty over the Autumn Budget saw businesses continue to put hiring plans on hold during October,” said Mr Holt, KPMG’s group CEO.

“But [October’s figures show] employers didn’t turn to temporary staff to fill gaps”.

‘Hiring freeze’

‘Filling gaps’ covers four of the five main reasons why employers tend to recruit techies temporarily, says MCS Group’s Jill Johnston.

First, the employer has a “hiring freeze” affecting new permanent headcount but has “delivery deadlines” that still need to be met.

Second, the employer needs a certain skill for a set timeframe which they don’t currently possess in-house.

‘Tech skills simply aren’t readily available’

Third, the employer needs to fill a skills gap quickly amid the potentially long process of seeking a full-timer to plug it.

Fourth, the tech skills required “simply aren’t readily available on the permanent market.”

MCS’s head of IT contract recruitment, Johnston said clients also hire IT freelancers when ‘ramping up for project delivery purposes.’

‘London often moves first’

In the REC’s October report, the ramping up happened in London, followed by the likes of Birmingham and Leeds.

Speaking after the report’s publication, Mr Carberry explained: “A notable point though was London, where there was something of an inflection away from recent lows.

“We'll be watching to see if this becomes a trend. London often moves first. And taken with a growing temp market in [cities in] the Midlands and North, the picture is not all gloomy.”

‘In short supply’

The temporary market for computing candidates in October was “in short supply” of nine categories of IT skills, the REC said.

The nine were; Automation Testing, Cyber Security, Data Architecture, Data Engineering, Development, Full-Stack Development, Java, Technical, and Technology.

Six of the nine were scarce for full-time tech vacancies too, notably; Cyber Security, Data Architecture, Data Engineering, Development, Full Stack Development, and Technical.

The permanent IT jobs market was additionally short of AI Developers; CAD, CNC,  Data Scientists, Digital, SMT Engineers, Software Architects, Software Developers and Technical Sales. 

‘Stable investment picture for the next five years’

“Clearly there were multiple challenging elements last week,” said Mr Carberry, in the first week of November and alluding to October’s Autumn Budget.

“But there is now also a stable investment picture for five years. The challenge now is to get investment going.

“That requires the government to deliver on industrial strategy, skills reform, and planning. And most importantly, to talk up the British economy. It's been a tough couple of years, but the potential is there.”