The Strange Case of IR35 and Housing – A Parallel Universe

It’s been a funny old time of late in housing. The demand for change management and consultancy services within housing associations has kept me extremely busy over the last few years. So much so that I haven’t had the capacity to actively pursue local authority housing business.

I’ll be honest, when you have the choice to supply to a market that isn’t impacted by the IR35 intermediary legislation (housing associations aren’t classified as public sector), versus one that is it (ie. local authorities), then it is a fairly simple decision where to spend your time.

That was until the phone started ringing with increased local authority housing interim demand. The reasons are broadly two-fold: a need for councils to boost their development capacity and post-Grenfell remedial work in asset management and resident Safety.

I wasn’t the only one who made the choice of where to place my focus in 2017 – so did most of our candidate base. People who had previously bounced between local authorities and housing associations would now only consider work where they could use their personal services companies, most likely in housing associations.

Much has been written about public sector organisations with blanket policies that all interims are to be pay-rolled, even if certain assignments did satisfy criteria to take them outside of IR35.

The good news is that the disruption has subsided, and we are seeing public sector clients taking a more pragmatic approach. However, even in the time it takes to assess whether a role falls in or outside IR35, the fight for top interim talent is such that even a small delay can spur a candidate to accept a role in a housing association, where there isn’t risk of an unfavourable IR35 status result or subsequent changes down the line.

So what has happened with the funny case of housing? It falls broadly into four categories:

1. Local authorities structure certain assignments to satisfy the criteria for falling outside IR35. They consider them as discrete pieces of project-based work and define outcomes and deliverables. The assignments are augmented to be unrecognisable on the organisation chart and official line management is not required.
2. Where IR35 is strictly enforced, local authorities are forced to increase the day rate to attract talent in the particularly ‘hard to fill’ roles such as development or compliance by 15-25%. I have witnessed some incredibly generous day rates paid to candidates to incentivise them to remain within local authority settings.
3. They only hire interims with predominately local authority experience who have already been through the IR35 pain barrier and resigned themselves to a new world without the benefits of their public services company.
4. They are only able to attract the less experienced, mixed background candidates, those that struggle to secure work in housing associations, or candidates early on in their interim careers who view local authorities as less crowded.

Examining these outcomes, option 1 is the ideal. It means no increase in cost, and often a better quality and therefore a value for money result. Utilising our Return on Interim (ROI) methodology, NSCG has the infrastructure, experience and knowledge to work with clients in this way. This is our desired modus operandi across all sectors. This is however clearly not as feasible a solution for office holders’ posts such as executive director of property.

Option 2 is not good at all. By the time the intermediary legislation comes into play in the commercial world in April 2020, local authority housing and development functions in some cases will have been paying artificially high rates for 3 years. This cost adds up to hurt already incredibly stretched budgets.

Until the market shores up in 2020, option 3 is often the reality. The inference isn’t by any means a comment about the quality of talent in the sector, it is more an observation that local authorities have and will continue to miss out on some of the benefits from the cross pollination of ideas and skills from those coming in from outside the sector.

In terms of option 4, the hiring of inexperienced interims can end up wasting valuable time and resources on typically business critical pieces of work. Option 4 is undesirable from this perspective however a positive side effect is that some first-time interims have had some really meaty, stretching inaugural assignments, often excelling in their given opportunity.

Final thoughts 

So, the countdown commences to April 2020. The strange case of the parallel universe of housing has one year left. One thing for sure, it has given us a window of consideration and learning. We now have a broad idea of what to expect and how best to advise clients to continue to secure the best interim solutions to transform services.