Optimism in the contract market – 2025

Back in October 2024 – following Labour’s first budget of this parliament – I’d written about whether it could have signalled good news for UK Contractors. According to recent research from APSCo/Bullhorn, there was a 24% uptick in contractor vacancies in the UK in January 2025 – year-on-year from 2024.

Further research showed that (with December ‘seasonal lull excluded) there was a 17% increase in contract jobs between November 2024 and January 2025.

Does this imply  a significant shift in market sentiment and how might this affect a UK business’s recruitment plans this year?

Interest rates are falling – should UK businesses invest in project spend in 2025?

The current BoE base rate now sits at 4.5%, which is 0.75% lower than at this time last year.

I have previously explored how, many companies use financial instruments such as loans or overdrafts to fund their projects and, therefore, their contractors. With more competitive rates available for businesses – 2025 might be an opportune moment to invest & scale with flexible resources.

The Employer’s National Insurance increase kicks in soon

The self-employed are responsible for their own employer’s national insurance and the increase that was announced last year – kicks in from April 6^th.This may be leading to a rise in demand for contractors operating “Off-Payroll” (“Outside IR35”) as companies look to avoid picking up an increased NI bill.

There are resourcing gaps in many teams

Following periods of large-scale redundancies – it is normal for companies to find gaps in their resourcing plans. This is especially the case if the company wins a new client or project – it may not be appropriate or possible to hire permanent employees quickly enough to meet increased demand. Bringing in a contractor for a few months may be the perfect solution in these circumstances.

It may be easier to get budget for a contractor than hire somebody permanently

Finance Directors might be more easily convinced to sign off the budget for an initial 3-month contract rather than a permanent employee. It’s not just the increase in employer’s NI that could affect that decision – the Employment Rights Bill is progressing (albeit in a slightly watered-down format) and that will also increase the administrative cost of employing people permanently or temporarily “on-payroll”.

Maybe you should reconsider IR35

The day rates for “Outside IR35” contractors are generally lower and due to the end of “double taxation” the risks associated with an incorrect determination are lessened. The Employment Rights Bill also looks set to include a ban on 0 hours contracts for “agency workers”. Engaging with a contractor via a limited company “Outside IR35” could end up being the only remaining solution, that offers businesses true flexibility.

Demand might start to catch up with supply

So, if the January trend continues the number of contract jobs should continue to increase, “Inside” roles might become harder to fill again and, following a 2-year downward trend –  contractor day rates could once again begin to rise. This may a little optimistic but if that happens – businesses may find it is much more challenging to secure top contractor talent in 2025, than it has been for the last couple of years.

Looking to hire contractors or find contract work? Contact Ben today!

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