Offshoring harms already fraught IT contractors. Here’s what ministers can do

The offshore outsourcing of jobs and work from Britain is becoming an increasingly urgent issue for the UK economy and its technology workforce.

But sadly, it's missing an urgent response, writes IT recruitment agency founder Matt Collingwood, boss of VIQU IT.

Somehow, offshoring didn't feature in IT contractors' top concerns for 2026, nor UK IT contracting's predictions for 2026.

Is offshoring jobs from the UK subject to any rules or reporting requirements?

Offshoring isn't regulated.

Offshoring also isn't tracked, and its corporate practitioners aren't required to account for it.

And since its last major resurgence following the IR35 reforms of 2021, offshoring continues to hit UK IT workers as a whole in 2026 in an unparalleled way.

How is offshoring affecting IT contractors?

As one Test/QA job-hopeful put it recently (January 2026):

"I worked in IT for 26 years, being a contractor for the last 17 years and have now left the industry to do something else, as the contract and job market seems to have evaporated.

"I think offshoring is a major part of that, although AI sucking the oxygen out of the room probably doesn't help either.

"I think it [offshoring] is becoming a National Security issue."

How do UK companies that offshore IT roles see themselves?

Not for the first time in my nearly 30 years in technology recruitment, I'm speaking with some companies that clearly see offshoring as a way to reduce costs and scale quickly.

Entrepreneurial mindsets and growth plans should be applauded, of course.

But the broader impact of offshoring on Britain's full-time and freelance technology staff is both adverse and significant.

How much does offshoring tech jobs cost Britain?

The most established estimate is that £100 billion from the UK is being drained from the tech sector alone, every year, due to offshoring.

Ahead of this article, which is exclusively for ContractorUK, I spoke with an IT contractor I've worked with for nearly 20 years.

Between us, and despite IT contractor demand on a national basis fortunately nearing growth once again after a prolonged period 'in the red,' we reached a blunt conclusion:

This is the harshest temporary IT labour market for the UK that either of us has ever known.

In a reflection of today's "Start With Why" age, he cut straight to what he deems to be the cause of this nadir in UK IT contracting. He told me:

"Forget IR35. Forget the economy. None of that is GUTTING the contract market the way offshoring is."

The reality? The more I see, the more I'm convinced he's absolutely right.

Is UK IT contracting fiddling while it burns?

Compared to its impact, we barely acknowledge offshoring.

While the contractor industry obsesses over tax status determinations for individuals, 2% points more on dividends, or day rates looking out of whack with the cost of living, the real shift has been happening elsewhere.

What's the truth about the UK offshoring jobs?

The UK is exporting opportunity at scale.

Britain is funding the growth of overseas capability while steadily eroding our own.

The United Kingdom is not just competing globally; we're underwriting the competition.

And we're doing it in the name of cost optimisation.

(Editor's Note: To see the names of some UK organisations/companies engaging in offshore outsourcing, see IT contractor Nadine Drelaud's helpful rundown here).

Is offshoring only an IT industry problem?

To any MPs reading ContractorUK who think the 'problem' of offshoring can be partitioned off, it can't — because it's not just an IT industry issue.

An Oil & Gas and Renewable Energies consultant specialising in HSE services said — just last week on LinkedIn:

"In my industry, a lot of work that used to go to small local 1 or 2-person Ltd companies, now goes overseas to big multinational consultancies".

What are four key staff sourcing terms, and what do they mean?

Before I go further in this article and look at:

• The Cost of Offshoring
• Why Companies Offshore
• Issues with Offshoring (including IR35)
• Proposed Solutions
• Offshoring's Outlook & Predictions

…it is sensible for me to define four key staff sourcing strategy terms.

1. Insourcing: This is the term used to describe internal company staff (and contractors) to manage key services in-house
2. Outsourcing: This is the term given to describe utilising a third-party company, domestically or abroad, to perform specific business functions.
3. Offshoring: This generally means the relocation of business processes or jobs or work to a distant, invariably overseas, location.
4. Nearshoring: This term denotes the relocation of business processes or jobs to a nearby country, usually in the same or a similar time zone.

The Cost of Offshoring

IR35 reform in the shape of the Off-Payroll Working rules is often touted as the major reason that IT contractors face challenging market conditions in 2026.

However, many IT contractors are becoming increasingly aware of the impact of outsourcing and offshoring.

And the impact it's having on their domestic career prospects as technologists, too.

Are UK organisations offshoring more in 2026?

In fact, 57% of UK organisations plan to increase the level of business processes they outsource to third parties in 2026, according to a Parseq survey of business leaders.

So, unfortunately, if you think offshoring is currently a 'problem,' this means it will only get worse this year.

My view is that offshoring is not just a theoretical concern; it comes with real financial and employment consequences.

Businesses can save tens of thousands per employee by offshoring, which is resulting in some turning their backs on UK contractor support.

How big is the IT outsourcing market?

According to data service company Statista, international IT outsourcing is estimated to have hit $588 billion (£443bn) by 2025, driven by cost savings, global talent access, and rapid advancements in technology.

To highlight the cost-saving potential of offshoring, let's take a common example I'm seeing.

Offshoring of a UK IT support job: the business case/example

A UK-based IT support role is priced up at £45,000 annually.

This £45k total cost includes employer costs such as pensions and employers' National Insurance.

But the same IT support role in Manila, Philippines, can be priced up today — for the same UK employer — at approximately £7,000.

What do UK employers conclude from cheaper offshore tech workers?

The takeaway for the UK employer is pretty straightforward.

It means it can hire SIX offshore employees for the price of just ONE Briton.

With this level of cost disparity, the number of UK jobs at risk is substantial.

Why Companies Offshore

Over the last 10-20 years, the proportion of offshored roles has steadily increased, particularly in IT, support services, and routine business processes.

Back in 2000, only around 20–30% of IT functions were offshored or nearshored.

By 2008, that figure had jumped to roughly 66%, according to an EquaTerra study.

Fast-forward to today (2026), and most companies either already offshore at least part of their IT function or have plans in the pipeline.

What motivates UK employers to offshore roles?

Several factors drive the decision to offshore jobs.

UK employer costs are high, including recent increases in employers' National Insurance, as well as other costs such as pensions, hiring, and onboarding.

Currently, employers are taxed 15% for each job they create by way of employer National Insurance.

Additionally, employment laws abroad are often less restrictive, allowing companies more flexibility to scale teams up or down without the regulatory hurdles present in the UK.

But the short answer to 'What motivates UK employers to offshore roles?' is 'Costs.'

Organisations may get more respect from the UK's IT workers if they acknowledged this and actually 'called a spade a spade.'

What frustrates IT contractors the most about companies that offshore?

As a programme director shared with his followers in early 2026: "What frustrates me most is that it's sold as 'efficiency' or 'global capability,' when in reality it's often nothing more than accessing cheaper labour at the expense of our own workforce.

"It's also a major driver behind the surge of green [Open To Work] banners on LinkedIn, with talented people at home struggling while roles are quietly shifted overseas to cut costs."

Issues with Offshoring (including IR35)

Offshoring is causing the UK's full-time employees and freelance contractors to operate in an environment of reduced job availability and heightened competition for roles.

The more UK workers are out of work, the less negotiation position contractors have, which means end-users are more likely only to offer 'Inside IR35' contracts, as employers still don't want the HMRC risk.

If organisations aren't struggling to fill skills gaps because of the low-cost, always available option to offshore work, they have very little reason to offer 'Outside IR35' contracts. This, in turn, impacts the wider contracting market, reducing opportunities, keeping day rates low, and making the temporary labour market far more competitive.

What would an increase in UK jobs being offshored lead to?

Additionally, if dependency on foreign talent pools continues to increase, we'll continue to see money leaving the UK, which would potentially mean:

• reductions in reinvestment in local technology ecosystems,
• the relocation of innovative practices and technologies to the countries where the work is being performed.

Proposed Solutions

There's an online call for UK organisations that outsource jobs offshore to face some sort of 'reporting requirements.'

Details like the number of UK roles replaced, where, via which supplier, and the outcome for the employer, would apparently be disclosed, according to supporters of this 'reporting requirement' system idea.

My preferred solution is for an IT equivalent of "Made in Britain" or a "Kitemark" scheme to identify and support British technology jobs.

How might the IT equivalent of 'Made in Britain' work?

There's a banking and call centre equivalent already, which you might be familiar with, without actually realising.

When I call up my high street bank, there's an automated message that plays before I am connected to a person.

And its sole purpose is to let me know that I'm about to speak with a customer service representative who is in the UK.

Similarly, companies hiring tech workers could take pride in insourcing and even outsourcing wherever they are developing IT roles and technology functions domestically.

Under my envisioned 'Kitemark UK IT jobs scheme,' there'd be recognition for those creating a reputation and brand that signals a commitment to supporting British tech jobs and the wider UK IT economy.

Are big IT offshore outsourcers regretting their decisions?

There are signs I'm not alone in thinking about offshore outsourcing and reputations.

At the time of writing, some large organisations that use outsourcing are now discussing (quite openly) how there is a reputational liability associated with outsourcing that they need to tackle or be operationally aware of.

Could the UK government step in to discourage offshoring?

Alternatively, an intervention by the UK government could discourage offshoring through favourable taxation or other regulatory measures, such as the 'reporting requirement.'

There are international examples already in place, including the US administration's focus on domestic sourcing.

These 'live' examples from our rivals could provide a lens for understanding what such policies and solutions to discourage offshoring could look like in the UK, with technology jobs.

At present, businesses are taxed heavily for creating jobs in the UK, but aren't taxed at all if they send those jobs overseas. And, well, for the good of UK IT, I don't believe that situation should be left unchecked.

Offshoring's Outlook & Predictions

The outlook for UK jobs in the contractor and IT space is concerning.

Over my almost three decades in IT recruitment, the trend hasn't been a fair one for contractors.

Today, rising employer costs mean offshoring will likely continue to grow, and automation through AI will further disrupt domestic tech job availability, including on a contract basis.

Positively, there's still a strong domestic need across many specialist IT areas, with work requiring technology worker 'boots on the ground' at client sites, alongside project-led roles for Project Managers and Business Analysts.

However, I do find it worrying that more than a fifth of contractors (22%) now work only with international clients. Therefore, the UK government must start working on plans to counter this trend to keep tech talent and IT opportunities in the UK, surely?

All that glitters overseas isn't gold to everyone

It should be borne in mind that contracting overseas is not possible for every IT contractor.

Likewise, many UK businesses are not interested in talent from abroad because of time differences, communication barriers, increased management needs, and security risks, among other factors.

Is Britain suffering from an IT brain drain?

But that's not to say that a slow and growing brain drain isn't happening today in Britain, especially in IT.

Ministers should stem this exporting, with domestic-sourcing initiatives, incentives, and recognition schemes that celebrate UK-based IT talent and technology roles tied to Britain.

Would government action to discourage offshoring be popular?

To conclude, I'll leave with you the words of a Data Quality specialist, which I think convey why formal action to stem the tide of tech jobs leaving the UK is overdue and would receive wide support.

"We have gone from having the most respected and wanted computer personnel in the 80s/90s to has-beens, because we have so little incentive to produce the best, as all major IT work is outsourced at rates nobody can match. And all this, on the back of years of catastrophic large IT failures…When are UK companies going to realise they need a permanent base to develop and support their IT processing?"