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ARC response to referendum decision

Adrian Marlowe, chairman of Association of Recruitment Consultancies (ARC)


Many will be shocked at the results of the referendum announced, others will be delighted, but what could the impact be upon the recruitment industry? The decision has been made and therefore we should turn to potential positive outcomes, after all at this stage no one can judge what the effect may be on employment generally.


First, there will be no change in our legislative make up until Parliament decides to amend or repeal the European Communities Act, which was the enabling Act that facilitated our entry into the EU constitution in the first place. Also, Parliament has to decide when to give effect to Article 50, namely give formal notice of termination to the EU. These steps may not happen for some considerable time, and no doubt this will be the subject of early discussion amongst the politicians.


David Cameron has already said he will stand down, probably by October, and that the decision (about Article 50) will be for his successor, so there is little prospect of an immediate exit from EU membership.


Therefore, those UK businesses which engage or employ workers from Europe and the workers themselves need not immediately be concerned. The same should apply to those UK citizens working in Europe as the EU remains bound by its rules towards the UK until notice is given. It is important that this is understood so that any knee jerk reaction is avoided. Also, all the indications are that those currently allowed to work here should be able to remain in the long term, albeit their future will be determined under new rules to be formulated down the line. To that extent only we must wait and see.


Of importance to the recruitment industry however is how the referendum decision could affect employment relations within the UK going forwards and here a key pillar of the Brexit campaign is relevant. EU directives, which for so long the UK has had to adopt through regulation, will no longer need to be implemented when the exit happens. This means that those regulations in place can be changed, but whether or not they should be changed is an entirely different question. The idea that arguably “onerous” regulation will obviously be abandoned may not be turn out to be the case and may be determined in reality by the outcome of negotiations between our government and the EU. Great store was made by the Remain side that to continue trading with the EU would probably still require us to abide by certain minimum EU rules, for example as accepted by Norway and Switzerland.


Also, once we are actually out of the EU, the European Court of Justice (ECJ) will no longer in effect be the ultimate law court and arbitrator of decisions affecting the UK. This is relevant. Recently the ECJ has made some perplexing decisions. For example, the ruling that holiday pay must be provided taking into account commission. We believe that laws should be beneficial and practical and easily understood, this example demonstrates entirely the opposite.


So what could recruiters want Parliament to decide upon that affects employment relations?


Some time ago the government withdrew the popular staff hire concession under which VAT need not be charged on the workers’ pay element of an agency’s supply invoice. As a result, non VAT registered organisations, such as public sector, charities and banks, from that time have had to pay VAT on that element, so forcing up cost. The reason for the withdrawal given by HMRC at the time was to bring VAT into line with EU rules. That argument now falls away. ARC for many years has been running a campaign for the VAT tax concession rule to be reinstated for public sector and not for profit employers, so supporting those sectors and recruitment businesses supplying into them. We shall now once again press for change in this area as reinstatement would once again provide important options and flexibility.


More recently ARC argues within its Fairer Tax Campaign that the government should take a defined positive policy towards agency worker supply as a matter of principle, and in particular permit tax relief for all agency workers on home to work travel subject to suitable limitations. This means the same tax rule for all those who find supply work through agencies regardless of status, e.g. limited company, self-employed or otherwise. This would provide massive simplification and support employment whilst avoiding legal argument about status, government claims of tax avoidance, and prejudice against the lower paid, all of which exists under the current regime.


The argument against the tax relief concept voiced to us by HMRC was that it would not be possible to implement because of the EU State Aid rule. This rule prevents the state from supporting particular sectors or organisations so distorting the marketplace and is the one that interfered with the possibility of government financial rescue of the steel industry in South Wales. ARC believes that giving tax relief to agency workers would not in any event amount to state aid, but the argument deployed by HMRC falls away now we are to break from the EU.


What can be seen is that with the change engendered by the referendum there is more opportunity to press for a flexible employment model in the UK that supports all. The entrepreneurial spirit that is embraced by the recruitment sector, one of the UK’s flagship industries, should be allowed to flourish. This should not necessarily be at the expense of worker rights, and care should be taken before calling for the abandonment of directive driven rules such as the Agency Workers Regulations. Instead we call for a positive model and reform that provides for real choice, so attracting foreign investment at the same time as improving efficiencies in the UK.


As the dust settles ARC will be focussing on how the recruitment sector can help drive engagement and improvement across the UK in the new post referendum era. This is a £30bn p.a. industry, and whatever anyone’s view about Brexit, joy or disappointment, the silver lining should be seen for what it is, distinct from the clouds of uncertainty.


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