IR35 will only level the LGV driver pay playing field

Given the Coronavirus pandemic and the resulting likelihood of recession, we are likely to find that the LGV driver shortage becomes more of a challenge than ever before.

As a result Driver Require feels that it is still relevant to maintain awareness of the potential impact of a driver shortage and accordingly we wish to respond to Gary Gates’ article. We concur generally with his points and conclusions, but importantly we would like to correct a couple of misinterpretations of Driver Require’s intentions and the key findings from its white papers.

IR35 is effectively a “tax” imposed by the government, where neither the driver nor the agency gains from the increase in costs. Our white paper 'IR35 and its potential impact on the temporary LGV driving sector' explores the impact this may have on the drivers, the agencies and the hauliers. Furthermore, we are not furthering the financial gain of agencies, we recognise that the burden falls on the end client, who we explain will naturally try to push this back onto the agency and the worker “to absorb some of the pain”.

Our white paper agrees with Gary’s view that hauliers are operating on razor-thin margins, however, we point out that so are the agencies. If hauliers try to force the agencies to take the pain and workers to reduce their net pay, they will risk pushing agencies into administration and losing drivers to other careers or to other continental European countries where the pay and conditions will be better.

We make the point that we do not want to see end customers suffering because drivers have been given a pay increase, but that if driver pay does not rise we may see an exodus of LGV drivers from the UK haulage sector and a consequent LGV driver shortage crisis, which will naturally force pay rates much higher through supply and demand market forces.

We agree that the hauliers are in a difficult position with supermarkets forcing down their margins, but there must come a time where the entire supply chain will start to collapse, and the supermarkets will have to accept an increased cost of supply. Saying that, let’s put the potential agency cost increase into perspective.

According to the RHA Haulage Cost Movement 2019 report recently published, labour costs represent around 26% of hauliers’ costs. Of this 26% assume approximately 80% is LGV drivers, so 20% of the total. Of the LGV workforce, we would expect no more than 20% to be agency, so 4% of the haulier’s total cost. If we then apply a 20% increase to the 3.6% agency bill, we get around an 0.8% increase.

This is substantially less than the 3% inflationary pay rise that the operator should be awarding to its own workforce each year, which leads us to question why it would be such a big issue.

We completely agree with Gary’s observations about the non-financial elements that are discouraging drivers from entering or remaining as LGV drivers in the UK haulage sector. In fact, Driver Require’s other white paper 'Investigating the UK’s LGV driver shortage' makes exactly this point - market forces will determine wages, while hauliers and government can directly influence working conditions for the drivers.

The point about agency drivers earning £1 per hour more than full-time drivers is questionable. Our findings have been that parity agency PAYE pay rates generally provide higher net pay than equivalent legitimate limited company operators and substantially higher net pay than current agency market PAYE pay rates. Saying that, Driver Require welcomes a return to agencies performing their intended function of covering just the variable part of their clients’ requirements and not providing large volume replacement of "standard operations" as has too often been the case of late.

It is worth pointing out that the reason 3PLs and large clients, such as supermarkets, have “outsourced” their standard operations to agencies is precisely because agency costs are lower and less difficult to manage than their own workforce. This has only been made possible due to the government’s “subsidy” of agency workers through the tax relief from the limited company model. This artificial intervention by the government in the market dynamics is exactly what the government and HMRC wish to remove through the IR35 reforms, thereby achieving a level playing field that will in theory lead to a better regulated, higher quality agency market that is sustainable in the long-term.

If agencies do perform this critical task of covering variable requirements, then they and their drivers deserve a premium, firstly as compensation for the value-adding service they provide and secondly to compensate the drivers for their lack of security of employment and the fact that there will be little consistency in their working pattern.

Driver Require agrees with Gary that a review of the way supermarkets’ just-in-time supply chain operates might identify more efficient ways of deploying fleet and drivers to the benefit of all. We would be delighted to be involved in any such initiative. We are lobbying hard to raise awareness of the need to bring more LGV drivers into the UK workforce and to improve working conditions to encourage greater retention of the existing workforce.

Driver Require is currently analysing and reviewing the impact of the COVID-19 pandemic on the UK haulage sector and gathering opinion on the likely economic consequences, with the intention of producing a series of points of view to encourage discussion about possible recovery scenarios and the potential impact on the LGV driver market.

Kieran Smith, CEO, Driver Require

All of Driver Require’s resources and materials about IR35 are currently being updated in view of the delay in its roll out,