Uncertainties and opportunities for IT consulting following the budget
Author: Apache Associates
Published: 9th December 2024
Labour delivered its first budget in 14 years on 30th October to an expectant nation tired of sustained inflation and economic uncertainty. The budget gave the new government its first opportunity to announce major economic policy since the election, and it has presented a long-term plan based on increasing spending, taxation, and borrowing to introduce stability and stimulate investment.
A key feature of the budget was its announcement of a £40 billion tax increase, prompting extensive analysis of the impacts on hiring and workforce management from leaders across the recruitment and wider business communities. The challenge for the government lies in generating growth from businesses at a time when the higher costs it has introduced will make it harder for them to deliver.
Within recruitment, the approach to taxation will influence hiring strategies and reassurances are sought that the increased tax contributions will be reflected in enhanced economic conditions, where streamlined regulation, better infrastructure, and access to investment capital make doing business easier and directly affect workforce development and investment.
Increased investment in technology
Technology has been recognised as a key tool in reshaping the economy and delivering growth, with a notable aspect of the budget being a commitment to increased public investment in technology and digital infrastructure. This is demonstrated by the announcement of the Cross-government Review of Technology Adoption for Growth, Innovation and Productivity initiative targeting the adoption of transformative technologies.
Therefore, the increased focus on technology will create a ripple effect throughout the IT consulting sector as businesses and government departments upgrade their systems and processes to meet productivity targets and drive growth. This emphasis on digital transformation aligns with the growing recognition of technology as the foundation for efficiency and innovation.
IT consulting firms are therefore presented with the opportunity to expand their services, as more funding directed towards technology projects will lead to a surge in demand for consultancy expertise in areas such as cloud computing, cybersecurity, and data analytics. The focus on enhancing digital skills also suggests a potential increase in training and development projects, which will represent benefits to consultants and consulting firms specialising in technology training services.
Implications for contractors
Whilst the increase in employer's national insurance contributions to 15% was not as drastic as many feared, increasing the costs of hiring employees may prove to be a catalyst for freelancer and contractor opportunities, who can be engaged off-payroll. There is the risk that the increase might be passed on to umbrella company employees in the short term, but it is expected to be a long-term gain.
The laws surrounding IR35 did not receive direct attention, despite many seeking changes to regulations introduced in 2021 by the Conservatives, which increased administrative compliance on firms engaging contractors and led to many ending the practice. Figures suggest the current legislation surrounding IR35 has had a significantly negative impact on the contracting industry, with confidence low among businesses and freelancers alike.
Labour's New Deal for Working People document outlines some positive developments in worker's rights but does not hint at any forthcoming reform. Instead, Labour's immediate focus is on improving supply chain compliance and increasing HMRC's focus on tax avoidance within umbrella companies by clarifying liability for PAYE deductions. The focus on workers' rights and stability might, however, see businesses favour permanent over contracting roles if incentives encourage this business model.
Support for SMEs
Lack of digital transformation among SMEs has often been cited as a major contributory factor to the UK's internationally low rates of productivity and its position at the bottom of the pile compared to other G7 nations when it comes to business investment as a share of our economy. In an attempt to address these issues, the Department for Business and Trade will announce details of a £4m package to encourage tech adoption among SMEs in early 2025.
The Labour budget has also announced support for SMEs, recognising the vital role these organisations play in the UK economy. Much of the planned activity represents a continuation of initiatives introduced by the Conservatives to drive digital transformation, such as the SME Digital Adoption Taskforce. Additionally, funding for the Made Smarter Adoption programme will double to £16m in 2025-26 to help more small manufacturing businesses to adopt advanced digital technologies.
Higher operating costs driven by increases in employer taxes may see more SMEs reassess recruitment plans and lean towards flexible arrangements to retain better budget management. SMEs often rely on IT consulting support to deliver digital projects and may be open to investing in this area to enhance operations as financial support becomes available.
These initiatives could also lead to a more vibrant consulting market as SMEs, traditionally more cautious in their spending, now pursue digital transformation initiatives with renewed energy. IT consultants capable of offering tailored services are likely to be in high demand and can foster long-term relationships and drive growth.
Regulatory changes and compliance
Labour's budget addressed regulatory frameworks that could see IT consulting firms needing to adapt to new compliance requirements in areas such as data protection, privacy, and cybersecurity. As the focus in these areas intensifies, businesses will need expert guidance on how to navigate complex legislation. Furthermore, as regulations continue to evolve, demand for specialist compliance and risk management consultants is likely to increase to keep pace. Firms that proactively position themselves as thought leaders in regulatory compliance will enhance their credibility and attract clients looking for reliable partners to help them stay ahead in a dynamic environment.
Although not yet mandated, Labour is advocating for greater use of e-invoicing technology as a means to drive efficiencies, combat fraud and increase revenue collection. HMRC will open its consultation next year, with its introduction in the UK looking inevitable. Completing the necessary legal and technical checks and building, testing, and implementing new systems will take time, and this presents a further opportunity for specialist consultants to offer expert, finite resources to safeguard compliance.
Future challenges and opportunities
While the budget presents numerous opportunities, it is not without its challenges. Increased public spending of up to £40 billion a year can create inflationary pressures, which may adversely affect project budgets and timelines. As a result, IT consulting firms may need to manage rising costs while maintaining competitive pricing. This situation could require a re-evaluation of business models and operational processes to maximise efficiencies and ensure businesses remain sustainable.
A tight employment market with increased costs may see businesses focus on retaining and upskilling existing talent, leveraging corporate culture and career development pathways as effective strategies. Alternatively, with hiring budgets squeezed, organisations may look to flexible arrangements with external talent to allow them to scale with the speed needed to deliver key growth projects.
Moreover, the anticipated influx of projects may strain resources within consulting firms. As demand surges, firms will need to ensure they have the right talent in place to deliver high-quality services. This could lead to increased competition for skilled professionals, further complicating the landscape. Similarly, firms may see investing in automation and AI as ways to increase productivity and efficiency and prioritise these solutions to offset higher labour costs.
Uncertain but exciting times ahead
The recent Labour budget has the potential to reshape IT consulting in the UK, with increased levels of investment in technology and key areas of economic growth seemingly high on the agenda. Renewed scrutiny of the costs and complexity of regulatory compliance creates opportunities for consultants willing to adapt and innovate. However, rising costs and resource constraints remain challenges that must be acknowledged and addressed.
As the dust settles and the impacts of Labour's budget become clearer, if the IT consulting sector can navigate these changes effectively, it will have every opportunity to thrive and play a pivotal role in driving the UK's digital transformation and economic recovery.
CTA Visit our website for details of our current opportunities in IT and Sales.
Alternatively, call 01727 260 566 or email hello@apacheassociates.com
to speak to a member of our team.
Thank you!
Thanks, you have been successfully registered to the Apache Associates mailing list.
Close