The number of contractors out of work has more than tripled in the last two years, according to a survey conducted by contractor website Shout99.
More than 30 per cent of freelance IT specialists are now 'resting', compared with 11 per cent in 2000.
At the same time the proportion who have closed their businesses to go permanent has doubled to 16 per cent, according to the poll of 1,500 conducted last month.
Richard Robson, a director of the Professional Contractors' Group (PCG), has worked as a contractor for 14 years but has been off-contract since January.
"We're not asking for sympathy. It's pretty clear that we're in a recession but tax rules and bureaucracy are compounding the situation," he said.
Robson blamed controversial tax legislation IR35 together with ongoing abuses of the Government's fast-track visa scheme for adding to contractors' woes.
"In principle contractors should be investing in the good times to give themselves a buffer, but IR35 makes that very difficult," he said. "With the fast-track visa scheme, the onus is still on us to demonstrate that a skill is not in short supply."
A spokesman from the Home Office said the dossier presented by the PCG in May outlining alleged visa scheme abuses was being investigated.
"We take the allegations very seriously but the work is ongoing and it would be unfair of us to comment until it is concluded," he said.
The number of contractors who have closed their businesses and retired has also risen, from one per cent to five per cent.
Those choosing to work fewer hours and take more holiday or forced breaks has halved, from 23 per cent to nine per cent in 2002.
Simon Crockett, operations director at IT recruitment consultancy Michael Page Technology, said significant numbers of clients were looking to convert contractors to permanent employees to cut costs.
"There has been a drop in large scale projects, things like six- to 12-month implementations and database rewrites. Clients are saying 'I'd rather weather the storm with what I've got'," Crockett said.
But ongoing skills shortages were continuing to drive pockets of demand, particularly J2EE, Java, C++, SQL Server and Windows 2000.
"If you have a specialisation, market your specialisation. Take this opportunity to retrain or take on additional training," Crockett advised.
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