Umbrella company contractors working in the financial services sector could see more demand for their services after PricewaterhouseCoopers and the CBI announced that the sector was still growing.

The industry has now witnessed growth for eight consecutive quarters and the rate of growth in the first quarter of 2012 was above average. There was also an unexpected increase in hiring activity as 19% of financial services firms took on new staff after the turn of the year. Optimism in the sector has now increased for the first time in twelve months.

IT contractors also look well placed to benefit from additional opportunities as organisations look to increase their investment in new technology over the coming 12 months.

The chief economic adviser at the CBI, Ian McCafferty, said the recovery in the financial services sector was now on a firmer footing. Concerns over the problems in the Eurozone seem to have receded and business optimism and investment intentions have improved.

However, financial firms still face challenging conditions as business levels have still not recovered to normal levels.

UK corporates are displaying increased levels of confidence, but they are still holding back when it comes to increasing their spending, according to Deloitte.

The economic picture is blurred at the moment with the OECD predicting that the UK economy would fall back into recession in Q1, whilst other analysts predict economic growth in the first three months of 2012.

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Umbrella company contractors have no doubt been keeping a lookout for warning signs that the UK economy is slipping back into recession.

People can be forgiven if they seem unsure about the direction the country is heading in, especially when the experts seem to have differing opinions.

The CBI has now predicted that the UK will not suffer a double-dip and that growth this year will be 0.9% followed by 2% in 2013.

The CBI’s regular economic forecast says that companies are beginning to invest in equipment and looking for new export markets. It thinks the manufacturing sector will grow as exporters buy new equipment. It also believes that we will avoid two consecutive quarters of declining output by reversing Q4’s 0.2% fall.

However, the results of a survey from BDO suggests that turnover is still falling and that is an indication that a recession will follow. Furthermore, the CIPD has discovered that employers are feeling more inclined to make redundancies.

The BDO survey, which investigates company turnover, discovered that it has now decreased for eight consecutive months. In addition, the output index fell by 0.2 points to 91.2 in January. An index reading lower than 95 indicates contraction.

The CIPD questioned 1,000 employers for its survey and said the difference between the amount of employers planning to reduce their headcount and those intending to hire had increased to its highest level in more than two years.

The Institute’s public policy advisor, Gerwyn Davies, said employers were adopting a wait and see attitude three months ago, but now several services firms in the private sector have decided to make redundancies. The CIPD warned that we could see unemployment reach 2.85 million if economic conditions do not improve.

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Prospects aren’t looking too bad for contractors at the moment, but unfortunately the UK’s young people are still struggling to find employment.

Albert Ellis, from recruiter Harvey Nash, has echoed the calls of the CBI for the government to provide tax breaks for companies that hire young people.

The UK has nearly 1 million unemployed youngsters and the CBI wants the government to waive the first £1,500 of an employers National Insurance bill in return for hiring a jobless 16-24 year old.

Ellis says this would effectively mean that for every ten young adults a company takes on, it gets one free. He went on to say that his own company would take on additional graduates if the tax break were implemented.

Furthermore, Ellis believes that employers would take on more young people if the National Minimum Wage were frozen.

The REC has also been a long-term proponent of a National Insurance holiday for small businesses.

Kevin Green, the chief executive of the REC, was recently engaged in discussions with the business and enterprise minister, Mark Prisk. Green explained that the REC has been asked to draw up proposals to encourage companies to hire young people.

The Confederation will continue to push for government action, as well as showcasing the positive role recruiters play through the REC’s Youth Employment Charter. Nearly 100 REC members have already signed up to the Charter, which aims to work with schools and colleges to raise awareness of the opportunities available to the future workforce.

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The Times newspaper recently asked readers to rank the UK against five key competitors for tax, business friendliness, infrastructure, skills and workforce.

It will probably come as no surprise to learn that voters ranked the UK last when it came to personal and business taxation. In fact that UK didn’t come out smelling of roses many categories!

On the plus side, 57% of respondents believe the UK is a better place than France to do business, and 56% said it is better than doing business in India. Voters were also reasonably positive about the British workforce’s skills and the quality of education, although Germany and France ranked higher.

On the down side, 70% believes the UK performs worse than the US on personal taxation and 75% says it has worse wealth creation taxes. In fact a mere 6% of the respondents said were happy with the rates of personal taxation in the UK and only 7% said corporation and capital gains taxes were good or excellent.

The US, China and Germany were all ranked above the UK when it comes to setting up and running a business. 23% said the UK was a good place to set up but 30% said it was either poor or very poor.

However, the UK coalition wants to make Britain more small business and limited company contractor friendly and plans to open up more contracts to smaller firms. The government has also been trying to crack down on the issue of late payment to help small businesses better manage their cash flow.

The CBI welcomes the coalition’s moves but warns that smaller firms still have a number of obstacles to overcome. Chief policy director, Katja Hall, has urged SMEs to focus on the long-term outcome when they bid for public sector contracts. To compete with the larger players, SMEs must think about the outcomes and what it is they hope to achieve.

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Umbrella company contractors may already be aware that some industry sectors are doing better than others. Prospects in the IT and telecoms sector for example are blooming whilst public sector opportunities are diminishing fast for obvious reasons.

The CEO of Work Wise UK, Phil Flaxton, said that unemployment figures are increasing and indications from the CBI and the TUC suggest this trend will continue.

However, he believes that organisations could turn to contractors or part-time workers in order to improve efficiency. Especially for smaller enterprises, it is probably more financially viable for them to take on a temporary or part-time worker rather than hiring a permanent member of staff. The key here being flexibility, he added.

Meanwhile, Robert Walters, the recruitment specialist, has warned that employment prospects in the financial sector remain uncertain.

A spokesman from the company said that last year’s hiring activity was a one-off. The banks made drastic cuts during the global economic crisis and they needed to hire a lot of staff quickly once the crisis was over.

There will be some movement but it could be delayed. People are confused over what they are worth and they don’t know whether they are being offered a good deal because it has become harder to compare. This uncertainty has led to people at senior levels devoting more time to decision making.

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The CBI has welcomed the government’s new StartUp Britain campaign saying it could encourage more people to set up their own business.

The question is, will any umbrella company contractors decide to take the plunge?

The initiative has been backed by companies including Barclays, Google and Virgin Media and will offer new start-ups support worth £1,500 in practices such as online advertising and IT.

The CBI’s head of enterprise and innovation, Dr Tim Bradshaw, commented that StartUp Britain is part of a group of government initiatives to stimulate the UK economy. More people could be encouraged to become entrepreneurs if they receive the necessary guidance and support.

Bradshaw added that the changes to entrepreneurs’ relief and the cut in corporation tax announced in last week’s budget were particularly welcome.

So far more than 60 companies have pledged support worth millions of pounds to the StartUp campaign. AXA is giving 10% off the price of business insurance, Google will provide new businesses with limited free advertising and O2 is offering free line rental for one month.

Other organisations, such as McKinsey & Co, will run programs to encourage innovative graduates to become entrepreneurs.

The coalition wants to start educating children on the benefits of entrepreneurship from an early age. Every English school will receive government support to run a company through the Enterprise Champions Programme. Furthermore, 250,000 youngsters will be loaned £10 so they can enter the Tenner Tycoon competition.

Small firms will also be able to pitch their ideas through an online tool on how they would improve the efficiency of government. The best ideas will be selected by a group of civil servants and the winners will receive intensive mentoring from the UK’s most successful entrepreneurs.

David Cameron said he wants to see a country where entrepreneurs are setting up on every street, in every area of the UK. The recovery has to be led by the private sector and the StartUp Britain campaign is part of the plan to make that happen.

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As budget day looms ever closer, various organisations have been urging the government to create an environment that supports entrepreneurs, small businesses and umbrella company contractors.

The FSB claims that the UK’s small enterprises have a crucial role to play in the economic recovery and therefore the government must demonstrate a commitment to helping them grow.

National chairman, John Walker, pointed out that last year was tough and this year doesn’t look as if it’s going to be much better with unemployment remaining high, government austerity measures biting and GDP contracting.

There are 4.8 million small enterprises in the UK and they are well placed to aid the recovery, but to do so, they need help. George Osborne needs to use the Budget to provide businesses with incentives to hire more staff and to make it viable for unemployed people to become self-employed.

The Forum of Private Business wants to see more done to ensure funding is available to SMEs and limited company contractors. Although Project Merlin is supposed to address this problem, the Forum says that increasing lending to SMEs by 15% is not going to be enough to solve the funding crisis.

The chief executive of the FPB, Phil Orford, points out the process surrounding lending is too complex and this has led to a subdued demand for credit. He wants the government to improve transparency, affordability and flexibility in SME lending as banks will be unable to meet the 15% target if demand remains at its current level.

The CBI also wants the government to take steps to help private and family-owned businesses grow. John Cridland said the coalition needs to tackle the burdensome regulations which distract business owners from creating jobs and growing their companies.

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The CBI has warned that financial services companies in the UK could cut around 15,000 jobs over the next three months as the focus sharpens on lowering costs.

In the final three months of 2010, banks, insurers and other financial institutions shed around 30,000 jobs, Lai Wah Co, the CBI’s economic analysis head, reported. She predicts that a further 15,000 jobs may be lost this quarter.

This is not the standard across all areas of the sector. The main job losses are concentrated in banks, building societies and life insurance companies, she added. Investment managers and securities traders are continuing to hire employees.

In Q3, 2008, the financial services sector employed 1.1 million people. By the end of March this year, the CBI estimates that figure will have dropped to around 970,000.

Meanwhile, Morgan McKinley’s hiring market survey for 2011 shows that more than 50% of financial services firms expect to see recruitment rising this year. 54% of managers expect to increase their permanent headcount in the first half of this year and 29% are planning to take on temporary staff.

Morgan McKinley’s December Employment Monitor showed a monthly decrease of 48% in new vacancies on the City financial services job market. The number of candidates also dropped by 33% compared to the previous month. At the same time, average salaries for people securing a new role increased by 6% on November.

George Osborne has calculated that the private sector can create enough new jobs to offset the 330,000 expected public sector redundancies but those calculations don’t take into consideration the cuts in the financial services sector. As employment opportunities diminish, will we see an increase in people becoming umbrella company contractors?

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December saw a decline of 21% in the number of job offers confirmed in the City, according to Powerchex, the pre-employment screening firm.

Compared to November, investment bank opportunities dropped by a massive 65%, whilst insurance firms registered a drop of 17%.

However, other areas of the financial services sector did register increases. Opportunities in investment management increased by 12%, stockbroking by 5% and hedge funds by 1%.

The MD of Powerchex, Alexandra Kelly, said she thought that many companies might have over-hired in 2010 and might now have to adjust staffing levels to meet their business needs.

She also pointed out that it was important to compare these latest figures with those obtained in the past two years. In 2010, financial services companies made 37% more job offers than in the previous year.

Whilst recruitment might have died off in December, the overall picture for the sector is good. IT contractors will be relieved to learn that recent data from the CBI shows that activity in the financial services sector continued its increase in quarter four last year.

Half of the CBI survey’s respondents reported an increase in business volumes, whilst 27% reported no change. However, the CBI expects to see a slight dip in activity levels in the first quarter of 2011.

The director-general designate of the Confederation, John Cridland, pointed out that the financial services sector produced strong growth in the second half of last year but businesses expect it to slow down this quarter with only a reasonably modest increase in profitability.

He also noted that there were variations across the sub-sectors of the industry. Banks are expecting to see subdued business volumes but investment managers and securities traders are doing much better and are still recruiting more staff.

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Advice website Smarta.com has predicted that small businesses could increasingly outsource some of their workloads this year and this could benefit umbrella company contractors.

Small enterprises could find exchanging services and outsourcing a cost-effective way of avoiding the burden of legislation surrounding the employment of new staff. Red tape makes recruiting a major headache for business owners, said website deputy editor, Rebecca Burn-Callander.

Businesses need a certain amount of staff to function but the likelihood is that SMEs will outsource or use independent contractors this year rather than increase the HR administrative burden that comes with hiring full-time employees, she continued. Businesses are also likely to cut operating costs by collaborating and exchanging services with other companies, she added.

The HR burden is definitely weighing the majority of SMEs down. 72% of SME managing directors think they are spending too much time on issues relating to HR. 66% cite redundancy as their primary HR concern and 61% are worried that their organisation will lose talented people.

The red tape surrounding employee law is seen as a major concern by 88% of SMEs whilst 63% claim to have difficulty with pay and benefits regulations.

SMEs currently account for around 60% of private sector employment and these findings could cause concern for David Cameron who is keen to see small businesses grow and create extra job opportunities.

Meanwhile, the BCC and the CBI have started lobbying the coalition to make reforms to the employment tribunal system.

There has been a growing trend of late for employees to make spurious claims and business groups have now suggested that claimants should pay a refundable deposit or fee when they make a claim. This could act as a deterrent to those who bring cases which have little merit.

The government is due to launch a consultation into reforming the employment tribunal system later this month.

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Umbrella company contractors and those working through their own limited companies could be pleased to learn that Francis Maude, the Cabinet Office Minister, has abolished a two-tier arrangement that governed public sector payroll outsourcing.

The Code of Practice on Workforce Matters in Public Sector Contracts is to be scrapped with immediate effect. The coalition believes that these regulations have relegated external public sector service providers to a Cinderella type of status whilst privileging an “in-group” which might not have been either the most skilled or the most cost efficient.

The abolition of these rules will benefit SMEs, charities, social enterprises and cooperatives and leave the way open for them to play a fuller role in the running of public services. This move will encourage greater competition in the provision of payroll services and should provide taxpayers with better value for money.

Maude clarified that the move will have no affect on the provisions of the Employment Act 2008 or the regulations relating to the Protection of Employment legislation. Public sector organisations will still be obligated to promote equal opportunities and stamp out unlawful discrimination.

The CBI has welcomed the move, saying it was good news for British taxpayers. John Cridland, the Confederation’s director-general, said the code had hampered firms that tried to provide public services.

Employers will now have the flexibility to decide the best way to reward employees, he continued. Companies will be able to introduce better performance-related pay schemes, or make pension contributions based on length of service.

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Increased confidence in the manufacturing sector could spell bad news for umbrella company contractors.

The Markit/CIPS purchasing managers’ index for October, published on Monday, showed a 1.4 rise from the 10 month low figure of 53.5 recorded in September.

Employment in the manufacturing sector grew at its sharpest pace since June and export orders rose at their fastest pace since May. The demand for production staff has increased as companies recruit shift managers, team leaders and operators to get goods moving.

The food manufacturing industry in particular is coming up to one of its busiest times of year in the run up to Christmas. But clients are now feeling more confident and looking to permanent hires, said Sarah Frith, a FMCG recruiter at Scantec. Interims were a useful fill in when clients were unsure of the future but that uncertainty seems to have disappeared and even though VAT increases at the start of next year, Frith does not expect many problems in the industry.

The CBI has reported that small manufacturing businesses are expecting a rise in demand and 31% of SMEs hope to boost output between now and January. SMEs have also started increasing their workforce and now plan to invest in innovation and plant and machinery.

And it’s not only the manufacturing sector that is increasing recruitment. The Reed Job Index recorded the largest rise in new jobs since it began 11 months ago. The number of applicants per job has also increased but new-start salaries have dropped. All areas of the UK recorded an increase in vacancies with the South East and West Midlands registering 11 month highs.

As well as the manufacturing sector, demand was high in banking, marketing, financial services and tourism.

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