16 Oct Quiet Quitting

Quiet quitting is a new term thats made its way into Western lexicons to describe a new phenomena that emerged during the Covid years. Its used to describe employees who are dissatisfied which leads them to doing the minimum amount of work necessary to remain in jobs they dont like, or to describe employees who have psychologically disengaged from the workplace. This can be due to a variety of reason such as lack of hybrid or remote working, a poorer work life balance, other personal commitments, more employer demands on their time, lack of employer inflexibility and so on. But in almost every case the reasons tend to be socio-economic and usually linked to the cost of living. The UK economy has been in a poor state since the Covid years, and despite acknowledgement from the mainstream press or establishment economists has also been in a defacto recession since at least 2022.

The purpose of this article is to highlight an issue that has personally impacted me as an Independent Consultant who has spent nearly two decades as an IT contractor. Let me just preface this first that these are just my opinions. I’m not an economist nor anyone of any authority on this topic outside of my own personal experience and observations.

The term Quiet Quitting while being new in the West has been around for some time in China. China is the manufacturing centre of the World especially within Electronics. In their big city’s like Shenzhen, Shanghai or Gauanzhou this has led to extremely difficult conditions for workers that really have no parallel in Western economies. Long working days and 6 days weeks are the norm. The accompanying social pressures this causes has led to terms such as “Tang Ping” which means laying flat or “bai lan” meaning let it rot. Same as in the West these terms are used to describe a conscious choice by employees to do the bare minimum at work in protest against the encroachment by employers on their personal lives. I’m belabouring this point as i think its important to emphasise what this new phenomena is, as the Chinese term “bai lan” is an appropriate description of disillusioned employees who are expressing their frustration at the deterioration occurring in the workplace, which is directly related to the economic volatility experienced by many in the UK today. Its my contention that quiet quitting has impacted the UK economy and the IT sector specifically with significant consequences. This term can be applied particularly to the UK contract market which since introduction of IR35 in the private sector in 2021 has proven to be an economic Weapon of Mass destruction destroying the entire contract or gig economy in just a few years.

Temporary, short term and freelance contract work has been a vital part of IT for decades. Its used generally for two primary reasons cost and skills. In general its cheaper for a business to hire an appropriately skilled contract worker compared to hiring a a resource from an established supplier where the cost is usually much higher for the equivalent skillset. Of course it stands to reason suppliers have to charge more as their overheads are greater than a Ltd Company IT contractor whose overheads are much smaller. For example there’s no building to rent. Large amounts of equipment to hirer and maintain. Employee salaries to pay, and virtually no operating or capex expenditures of any major significance, This of course leads to a better ROI for businesses in the short and long term and also offers more financial wiggle room on large IT transformation programmes/projects where your capex run rate is the difference between whether a project delivers or not. Rate or your salary is obviously commensurate with skill and effort. The higher the rate the greater the expertise. The opposite also being true. Lower rates generally attract less experienced candidates .This leads me onto IR35.

IR35 was introduced in the private sector in April 2021 apparently to introduce more fairness on how tax was levied against gig workers. When classed as Inside you’re treated as a permanent member of staff on the umbrella payroll but with none of the usual PAYE benefits. So HMRC gets more tax and the Umbrella gets their margin too from the contractors rate. I’m not going to opine on my thoughts on the so called fairness of IR35 but i am going to talk about some of the important effects and blowback of this legislation.

When an IT contractor is determined as inside of IR35 their take home pay is essentially halved. So if they were earning £400 per day before tax their take home pay after tax would be circa £200 p/d. This almost immediately removes the financial incentive of any contractor or Ltd Company as not only has your wages halved, but demands on your time and effort have increased from hirers or employers while your personal economic circumstance or liabilities have remained the same. For example you likely have a mortgage or rent to pay. Bills, loans, as well as various other expenditures. If your take home pay is now halved the incentive to continue as a contractor or gig worker mostly disappears with it. There is of course also a material cost to skill. Training is required to enable expertise. Its usually the expectation of a hirer or recruiter that a contractor has the necessary skills and experience for the role they’re applying for. Without the financial incentives there is also less incentive to skill up, thus the highly skilled quietly quit and the sector atrophy’s and eventually rots.

This is deeply problematic with very broad implications as this widespread suppression in market rates also has the additional negative consequence of removing skilled IT resource from the marketplace, some choosing to retire. Many have also chosen to close their Ltd company’s or to take PAYE employment and the additional benefits you would get as an employee elsewhere that aren’t available when inside IR35. In essence gig workers are being forced to quietly quit because the economics of running a Ltd or Personal Services Company no longer make sense. Or to put it more colloquially “The maths aint mathing”. A fair exchange of course is no robbery and it stands to reason that employees will opt for the best package they can find and right now that’s not an IR35 contract with halved take home pay with none of the PAYE benefits, holiday, healthcare, bonuses and so on.

For the first time in my near two decades as a contractor I have never seen the UK IT contract market looking so dire although interestingly this problem doesn’t seem to be related to a lack of demand for skills. In fact the opposite is true. The market is demanding even more skills especially within Cloud, AI, security and compliance and Modern Workplace to keep pace with the rate of change. But the multiplicity of factors that all seem to be coalescing into some dark singularity of gloom and doom such as IR35, Brexit, Covid and AI each of which has had broad and far reaching economic consequences have all helped to terminally destroy the UK contract market. This isn’t a hyperbolic statement either as my personal observation is this is definitely terminal. When resource leaves the market place it usually doesn’t return or cant return unless the economics conditions are favourable for a return. Contractor demand has diminished for all the aforementioned reasons. Without this demand there is no market.

At the moment the UK simply doesn’t have an economic climate that’s favourable to entrepreneurship or to incur the financial risk of starting a business. The tax levys are just to onerous to make running even a simple Ltd company viable anymore. Rates are being suppressed with recruiters and hirers alike demanding more for less pay, bearing in mind compared to merely a few years ago the market has far less roles available too. This should be a worry for those in power as the UK with the swoop of its IR35 pen just destroyed one of the most productive parts of the UK economy. Small medium size businesses, Sole Traders and Ltd companies are the beating heart of any economy. When they start closing their doors because economic conditions no longer make their business viable an economy can go south very quickly. This is important as the UK has a very large service sector of which fintech is a major part of this. Finance, Insurance, Banking, Real Estate all enjoy the financial profits of IT.

Even with the additional tax revenue claimed to have been made since April 2021 by MPs, this has clearly been at the expense of an important part of the UK economy while at the same time other recessionary factors and effects of Brexit, Covid and AI have caused a glut of resource struggling to find work. Workers, employers and recruiters alike all in the same boat of struggling to find the “perfect” candidate with applicants submitting literally thousands of applications with no success. What’s left is being fought over by multiple recruiters. Some are just down right fake adverts. And many businesses have resorted to using existing suppliers or FTE staff for project delivery. Unsurprisingly many businesses now have their own inhouse recruitment too cutting out the recruitment middlemen. Value after all is much more than just margin from a day rate.

Many employees are using AI to write their CVs. Recruiters are using AI to triage these same CVs producing a doom loop of AI slop. Garbage in garbage out. If the necessary keywords aren’t on your CV then unfortunately regardless of your experience your CV wont even pass the first step.

Recruiters in their desire to compress time and to compete with other recruiters are now in a rapid race to the bottom for CVs and resource which has led to hundreds of fake postings online as recruiters hoover up CVs to feed their databases and algorithms. Hapless wearisome applicants are caught in this churn some spending months and even years before being hired or not being hired at all. Is it possible that the recruitment industry is the next high profile casualty? They’re being primed by AI for further cuts via automation and possibly even replacement.

This employee churn is also impacting the workplace. Due to the lack of contract resource businesses are being forced to use suppliers instead. As mentioned earlier this comes at a greater cost. So whilst HMRC got their IR35 tax revenue it was the marketplace and the UK economy that bore the brunt of the fall out this caused, as businesses are having to pay more to complete the same projects. Those same businesses are also attempting to hire. Unfortunately hiring compared to contract resource is usually a longer process. This lack of flexibility and agility impacts delivery and has also contributed to greater churn among full time resources looking for better deals or remuneration elsewhere further exacerbating the Quiet Quitting effect. There is an unhealthy competition between suppliers and many businesses in similar sectors over the same resource. This is notable in the AI space where vast swathes of AI talent seem to be in a merry-go-round between IT suppliers and AI start-up’s alike and in almost every case unsurprisingly over salaries. While advantageous to those employees the volatility and exposure this places on suppliers is considerable with this Darwinian logic of simple winners and losers spreading across the IT sector. I have no idea what businesses are intending to do to retain or ensure they can retain their best resource but its definitely a topics of importance to employers and employees alike. As usual the 80/20 rule always applies. The remaining 80% who didn’t keep up with the markets demands usually having the most trouble finding new employment. Thus as was the case with the Luddite Rebellion those that didn’t ‘keep up got left behind. This applies to all IT resource alike whether contract or FTE. But this problem that has reached its climax with the wholesale detonation of the IT contract market now spilling over to FTEs too, and from my personal and maybe limited vantage point no one seems to be noticing or talking about this in the public square.

As is the case during recessions budgets contract. Belts tighten. Employees and businesses alike are asked to do more with less. Economic necessity will ensure the employee churn continues as workers seek higher wages because of the constantly increasing cost of living. There is now no longer a market for highly skilled professionals. Businesses instead have to rely on suppliers and hope the supplier can deliver as those same suppliers no longer have access either. The contract market has been the first major casualty as the damage from IR35 cannot be undone and has been exacerbated even more by all the other factors mentioned earlier in this article. The question now becomes with the backdrop of all the UKs economic woes what’s the next domino to fall?