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Credit Suisse First Boston was first to tell its 900 contractors that it would be introducing the cuts. Days later, reports reached the Shout99 office that Hewlett Packard was also considering cutting contractor rates by 10 per cent, beginning in August.
CSFB refused to comment on any of the questions put to them about the situation, stating that they 'may be willing to make a statement at a later date.'
HP also refused to comment, similarly adding that they might be able to give a statement next week.
Chief Analyst at the IT analyst and consultancy organisation- Bloor Research, Steve Barrie said: "I believe that this is a rather interesting turn of events which, in theory, goes against the expected trend.
"With the introduction of IR35 and the continuing skills shortage, it was being assumed in most quarters that contract rates would have to increase. However, the Government seems hell-bent on solving the skills crisis in the UK by allowing anybody who can spell 'IT' to have a work permit. There is no evidence that these foreign workers will have any better skills than are already available. What is more, the contract market is in complete disarray due to the management failures of most of the agencies that people use to try and find work."
Mr Barrie stated he believed the HP and CSFB contractors subject to the cuts should have employment rights equal to the companies' employees if they are to be treated as employees for tax purposes. However, this viewpoint is the subject of debate within the legal profession and the contracting industry where many believe it is far from clear.
Mr Barrie said: "Even under IR35, European Law states that if they should pay the same tax, they should also receive the same benefits. That means they should be able to get redundancy payments in lieu of their contract if they are pushed out and reductions must count towards constructive dismissal claims assuming they have fulfilled the suitable qualifying period.
"At the end of the day, if they have a contract, then it needs to be applied properly. If these changes contradict the contracts then there is a case to be answered."
Nick Wells, author of IT jobs report website - Jobstats.co.uk, explained how the announcements fitted in with what he had already seen this year.
He said: "It is clear from the statistics that demand for IT skills has fallen sharply since the beginning of the year by about a third. However, this consolidated figure hides a considerably steeper and longer decline in the general demand for contractors that, in reality, is closer to 50 per cent since January.
"This is reflected in the drop in rates for contractors since the middle of last year- the rates have fallen by about 25 per cent since a peak in the late summer. Rates at the top end of the market have held up better (down 16 per cent), those at the bottom, worse (down 37 per cent).
"What has happened is that contract rates shot up last year as the demand for staff outstripped supply and now that the demand is falling, so are rates. Banks [like CSFB] have noticed that the demand is weak so they're using that to get some money out of the contractors. That said, the financial sector has fallen by less than the rest of the market (by about 20 per cent as opposed to 33 per cent). Banks tend to be more aggressive than other industries but then they pay much better too so you've got to take the rough with the smooth."
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Richard Powell, Shout99
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