Oil giant Shell has cut IT contractor pay by 12 per cent, reports state.

An internal memo sent to contractors last month ordered them to take the pay cut or no longer do business with the company, specialist publication Contractor UK reported. Shell did not elaborate on the reports at the time of writing.

Two weeks ago, bank Lloyds TSB cut contractor rates by 15 per cent, reportedly issuing a similar ultimatum.

Such treatment of contractors is now “widespread”, according to Richard Holway, chairman at analyst house TechMarketView. The larger discounts offered by foreign contractors were working against the interests of staff from the UK, Contractor UK reported him as saying.

Shell may also make further extensive changes to contractors and permanent staff. In May, it emerged that the company was planning to restructure IT, placing back office functions under the umbrella of finance. It is also setting up a new project management division to make individuals more accountable for successful delivery.

But the overhaul, a year after a shake-up at rival BP, is too little, too late, some analysts have said. Jason Kenney at ING said the “desperation” at Shell is “obvious”.

In 2008, Shell announced it was outsourcing 3,200 permanent IT jobs to EDS, T-Systems and AT&T under £2 billion worth of deals.

Shell was criticised for the redundancy packages on offer, which were dwarfed by those being given to oil rig workers. Martyn Hart, chairman of the National Outsourcing Association, wrote in his blog at the time that this "could undermine the importance of IT’s role within the company", and severely harm morale.

Shell is a CIO 100 ranked company.