Why BarCap's contractor rate cuts will produce a domino effect

Until recently, the IT contractor 10% rate cuts had largely confined to a handful of investment banks which were retrenching in the UK anyway. Now, however, BarCap's decision to slash contractor pay could prove to be the tipping point for universal rate cuts.

From 5 December, BarCap (and Barclays Wealth) will cut rates by 10% and demand that all contractors take 10 days holiday before the end of the year. We understand that the rate cuts are not across the board, but will still apply to some 60-70% of all IT contractors in the organisation.

BNP Paribas has gone one step further, according to sources, slashing its contractor rates by 15% from 15 December. This follows rate cuts at Deutsche Bank, Lloyds, Nomura, RBS and UBS.

One long-term BarCap IT contractor tells us that most people are "resigned" to the cuts as a sign of the times, but that many will reconsider their options in the new year, depending on market conditions. "If you're moving to a new contract at a new bank, it's often easier to negotiate a better day rate," he says.

BarCap says it is "realigning" its rates "as a result of the majority of our competitors implementing similar initiatives". However, its move could be seen as more significant.

Along with RBS and Lloyds, BarCap is a volume user of contractors in the City. So far, it's one of the few investment banks not to announce significant redundancy plans, so clearly the rate cut is a way to reduce costs quickly before year-end. Other banks, which have also held off significantly cutting headcount may follow suit, even if they're smaller users of contractors.

Goldman Sachs is believed to have curtailed its use of contractors, but kept rates stable, as have both J.P Morgan and Morgan Stanley. However, the big US banks are not particularly voluminous users of IT contractors.

Both J.P Morgan and Morgan Stanley have near-shored development work in Glasgow and Eastern European locations, which is more cost-efficient anyway.

Sources also suggest that Bank of America Merrill Lynch is set to announce a rate cut as early as next week.

So, which banks have yet to implement rate cuts? We're told that HSBC has kept rates stable (perhaps surprisingly as it's now wielding the axe) and some recruiters are suggesting this has already attracted more contractors to the bank. Commerzbank has also maintained its current rates, suggest recruiters.

Often, however, any IT contractor rate cuts are not being implemented across the board.

If there's a small team of contractors working on a 'mission critical' project, very often rates are remaining the same to avoid the risk of anyone departing, and those working on mandatory regulatory projects have also escaped, suggest recruiters. Similarly, contractors who may have been earning slightly less than their colleagues have, in some instances, been spared.