If the company can take them on as PAYE, doesn't that just prove that they shouldn't have been employing them as contractors in the first place? Sounds like RBS were doing exactly what HMRC created IR35 to stop.
Nope. Think of it more like contractors being forced to outsource payroll to their clients, without any of the additional benefits an FTE might expect. Or be legally entitled to. Rest is kind of contractual semantics, ie a contractor hired on a 6 month project previously charged £x/hr & handled PAYE obligations via their own Ltd/LLP. Now, they'll be 'employees' of the client for 6 months, with less rights & benefits than any FTE cow-orkers.
But that's all part of the fun, and where employment rights will likely get challenged, meaning more costs and headaches for both employer, and contractor. It's a clusterfunk.