The Chancellor today delivered his Spring budget. These are the main changes which affect employers and their staff:
Personal Tax and N.I
Changes for self employed:
- Class 4 National Insurance contributions, levied on profits of more than £8060 for the self-employed will increase from 9% to 10% in April 2018 and 11% in April 2019 for earnings below £43,000
- All Class 4 earnings above £43,000 will be taxed at 2%
- Class 2 National Insurance, a separate flat rate contribution paid by self-employed workers making a profit of more than £5,965 a year, is to be scrapped as planned in April 2018
Changes for individuals:
- No changes to National Insurance paid by the employed and employers or to income tax or VAT
- Personal tax-free allowance to rise as planned to £11,500 this year and to £12,500 by 2020
Changes for businesses:
- The Chancellor announced a tax avoidance clampdown totalling £820m to include action to stop businesses converting capital losses into trading losses.
- He also announced that UK VAT will be charged on roaming telecoms services outside the EU
- The way North Sea oil producers are taxed will also be reviewed
Pensions and savings
- The Chancellor also announced measures to tackle abuse of overseas pension schemes
Alcohol, tobacco, gambling and fuel
- Duty on beer, cider, wine and spirits will increase in line with RPI inflation, therefore 2p on a pint of beer, 1p on a pint of cider, 36p on a bottle of whisky and 32p on a bottle of gin
- Vehicle excise duty rates for hauliers and the HGV Road User Levy were frozen for another year.
The Skills Gap
- Free school transport was extended to all children on free school meals who attend a selective school
- Upgrade fund of £216m for existing schools
- Funding for 110 new free schools and grammar schools
- New T-Levels to be introduced to give parity of esteem for technical education
- Number of hours of training for technical students aged 16 to 19 increased by more than 50%, including a high-quality, three-month work placement.
- The Chancellor also announced funding of £270m for new technologies such as robots and driverless vehicles and £16m for 5G mobile technology and an additional £200m for local broadband networks
Health and social care
- Additional £325m to allow the first NHS Sustainability and Transformation Plans to proceed
- An extra £2bn for social care over next three years, with £1bn available in the next year
- Long-term funding options to be considered but so-called “death tax” on estates ruled out
- Most sugary soft drinks to be taxed at 24p per litre as part of plans to reduce childhood obesity
- £690 million competition fund for English councils to tackle urban congestion.
The Chancellor made three special announcements in support of International Women’s Day, namely:
- New funding totalling £20m to support the campaign against violence against women and girls
- A further £5m committed to project to celebrate the centenary of women first getting the vote, and to educate young people about its significance
- Funding of £5m to support people returning to work after a career break
The budget has received mixed reactions from the HR press so far:
Pay crunch coming as productivity struggles, says CIPD
Commenting on the 2017 Budget, Acting Chief Economist of the CIPD, the professional body for HR and people development, Ian Brinkley said:
On pay and incomes:
“While the headline GDP and jobs figures were reassuringly robust, the fact remains that pay is likely to be strongly squeezed over the next few years. With rising inflation likely to bite, real pay is projected to grow by just 0.2% in 2017 and 0.4% in 2018.
“It is particularly concerning that real household disposable income, the measure which best indicates how much money people have in their pockets, flat lines at 0% growth in 2017. What follows is a relatively weak return to growth through to 2021, and there is a clear risk that any financial hit, either as a result of Brexit or otherwise, could have a very damaging effect on fragile household budgets.”
“The Government’s productivity plan appears to be having no measureable impact on the economy’s future productivity performance, according to the OBR forecasts. The OBR assumption about future productivity growth between now and 2021 is little different to that published in November 2016 and worse than that published a year ago, in March 2016.
“If the economy is to survive the choppy waters presented by Brexit, then it is crucial that the Government does more to address the productivity problem with a greater focus on investment in skills and business support for SMEs, for example, as it is apparent that their current plan is not working.
“Above all we need a convincing skills strategy that addresses the skill shortfalls across the workforce as a whole. The Chancellor’s announcements regarding investment in skills and lifelong learning is a step in the right direction but it’s vital that workplace skills continue to be front of mind for the Government. We’ve hit record employment, now the Chancellor’s challenge is to make sure that work is more effective, and our economy more productive.”
On National Insurance Contributions:
“The changes to national insurance highlight the challenges associated with having a population that is working in increasingly diverse ways. With more people likely to become self-employed or involved in other forms of atypical employment in the future, the tax issues highlighted by the Chancellor will only become more problematic.
“The Taylor Review into the gig economy provides a crucial opportunity to re-set the framework within which the labour market will operate in the future, and we look forward to working with Matthew Taylor’s team to ensure that workers are given more clarity about their working rights.”
CIPD Skills Adviser Lizzie Crowley, said:
“It’s great to see recognition that tackling the UK’s skills challenges is a top priority. With a significant slowdown in workers coming from the EU, upskilling the UK’s existing workforce and the next generation is more vital than ever.
“Technical education has been a longstanding weakness in the UK skills system. Additional investment to help to equip the next generation of workers with technical skills is therefore very welcome as we head towards post-Brexit Britain.
“However, the majority of the workforce of 2030 is already in work, and whilst the £40m investment in lifelong learning is welcome, we question the balance of government spending priorities given the focus needed on helping people already in work.
“We look forward to hearing more about how the Government is going to improve lifelong learning, to ensure employees are able to perform to their full potential at work, keep their skills up-to-date and feel challenged and motivated in their role.”
Punter Southall Aspire: ‘Disappointing’
Alan Morahan, Managing Director DC Consultant, Punter Southall Aspire says, “Despite widespread criticism and feedback during the consultation period it is disappointing to see that Government is pressing ahead with the reduction of the money purchase annual allowance (MPAA) from £10,000 to £4,000, a reduction of 60%, particularly as this is happening so soon after it was introduced.
People who flexibly accessed their pensions with the reasonable expectation that they would be able to contribute up to £10,000 a year towards their retirement could now find themselves either hit with an unexpected tax charge or have to change their plans for future pension contributions.
We certainly know of instances where employees have flexibly accessed small pension pots but continue to participate in their employer’s pension scheme. Someone with earnings of greater than £40,000 and total pension contributions, including employer contributions, of 10% will now be liable to the annual allowance tax charge. Most will not even be aware of this charge and will inadvertently fall foul of the legislation.”
2017 Budget – Tapered Annual Allowance (TAA)
“The tapered annual allowance, introduced in April 2016, is one of the most ill-conceived pieces of pension legislation of recent times and it is disappointing that the Chancellor hasn’t acted to undo the tinkering with legislation brought in by his predecessor, George Osborne.
Employers and employees have struggled to deal with the implications of the taper and when 2016/17 self-assessment returns are completed there will be many who will face hefty, unexpected tax bills.
Our Autumn 2016 report, ‘Taxing time for high earners’ identified that many employers were not providing the flexibility to enable their employees to avoid a potentially punitive tax bill and those that had found it a complex and administratively difficult area to deal with.”
Chancellor missed opportunity to get Britain fit for Brexit and failed to make workers better-off, says TUC
Responding to today’s (Wednesday) Budget Statement, TUC General Secretary Frances O’Grady said:
“Today the Chancellor missed the opportunity to get Britain match-fit for Brexit by investing in jobs and infrastructure.
“The government promised an economy that works for everyone. But millions of low-income workers face cuts to in-work support, while big business is handed a huge tax cut.
“Workers will be no better off at the end of the Parliament than they were set to be at the time of the last Autumn Statement.
“The acid test for the Chancellor’s self-employment tax changes is whether they crack down on employers who force low-paid workers into bogus self-employment.
“Today’s extra funding for social care is desperately needed. But at a time when waiting times are soaring, it’s astonishing that the government has left a huge hole in NHS funding.
“And there’s still no real pay rise for Britain’s dedicated nurses, teachers and public service workers.”
David Southall, employment law consultant for the ELAS Group said:
The Budget’s direct impact on employment law this year is minimal. In light of the other pressing problems facing the Government this is not surprising. However in a wider sense, the manner in which the economy is managed by the Chancellor will influence business confidence, investment levels and the plans employers make (or do not make) in respect of their workforce.
Employer’s plans would require consultation with employment law advisors either in respect of updating contracts for the influx of new recruits and entering new markets/activities, or guidance in respect of reducing a workforce but maintaining essential workers for a business cycle upturn.
From this year’s budget, those issues which might have a tangential affect on your workforce planning are as follows: the increase in 2% NI from 10% to 12% from April ‘18 for the self employed may deter key staff from leaving to undertake business ventures on their own behalf (no sick pay , no holiday pay and now 2% more tax); there will be some investment in assistance programmes to ease people who have been on career breaks, back into work-this will allow the sourcing of skills and experience that may not otherwise be available to employers; finally to help employees with young families, free childcare entitlement will double from 15 to 30 hours a week.
Alan Price, HR Director, Peninsula said:
Employers were avidly watching Philip Hammond’s final Spring Budget to stay abreast of any important employment law changes.
The Chancellor used the speech to confirm income tax personal allowances will increase to £11,500 with the higher rate threshold increasing to £45,000 from April 2017. He also repeated the commitment to raise the personal allowance to £12,500 and the higher rate to £50,000 by the end of this parliament.
The most significant employment law initiative was the announcement of return to work support, or “returnships”. The government will be granting £5 million of new funding to the public and private sector to help people back in to employment after a long career break. Whilst this is most likely to affect women who have had a break from work due to family reasons, the support will be available to both men and women.
Employers will also have to get used to seeing T-levels on application forms in the future. From 2019-20, there will be 15 clear career focused technical education routes which double the number of hours of training for 16-19 year olds. The aim of T-levels is to ensure young people have the technical skills to enter in to the workplace.
Perhaps the most important change is the increase in taxation of self-employed individuals to reduce the taxation gap between them and their employed counterparts. The flat-rate Class 2 NICs are being abolished from 2018 but Class 4 NICs will increase from 9% to 10% in April 2018 and 11% in April 2019. Whilst this appears to only affect self-employed individuals with profits over £16,250, a further financial disincentive towards the status of self-employed could result in businesses facing an increase in claims regarding employment status. Although 2017 appears to be the year of employment status, this NI change could result in this issue running on for a number of years to come.
Alongside the Taylor Review in to employment practices, the government will also consider whether there is a need to reduce differences in parental benefits between the employed and self-employed. Similarly, this does not appear to affect businesses but the question of how these will be funded will need to be answered.
With no large employment law surprises in the Spring Budget, employers can breathe a sigh of relief that their current plans are not affected. Going forwards, the main financial changes will be announced in an Autumn Budget with a Spring Statement responding to financial forecasts.
Dr Rhidian Hughes chief executive of VODG (the Voluntary Organisations Disability Group) said:
“Government has woken up to the care crisis facing the country and £2billion over three years for social care is to be welcomed. But let us be under no illusion that huge issues continue to face people who rely on social care services. Unmet need is rising as fewer and fewer people are eligible for services, while some commissioners are also failing to meet statutory duties under the Care Act.”
“There is a big question mark over whether the sector needs yet another review on social care funding. But through the process of the Green Paper announced today, we need Government to work genuinely with people who rely on essential services, providers and commissioners to actively plan and crucially to deliver a sustainable social care sector.”
Young Women’s Trust chief executive Dr Carole Easton OBE said:
“While Young Women’s Trust welcomes the increased focus on opportunities for young people in today’s Budget, the government must not ignore the challenges young women face.
“High numbers of young women are facing serious and enduring financial problems because of low pay and job insecurity. A Young Women’s Trust survey found that 39 per cent of young women struggle to make their cash last until the end of the month. 25 per cent are in debt all of the time. One in 12 young parents has had to use a foodbank because they couldn’t afford to buy food. Young people say they are worried about their futures and many are putting their lives on hold. With inflation set to rise and wage growth slowing, it seems that things are likely to get harder for young women, not easier.
“Young Women’s Trust is calling on the government to be bold for change this International Women’s Day and take young women into account when delivering on its Budget commitments.”
On the Chancellor of the Exchequer’s announcement that the government will introduce T-levels, new technical versions of A-levels, Carole added:
“As T-levels are introduced, the government has an opportunity to ensure that young women are not shut out of industries like construction and engineering, as is currently often the case with apprenticeships. Supporting young women into these areas will benefit both them and the economy, as employers say there is an increasing skills gap to fill.
“Young Women’s Trust is concerned that the maintenance loans for T-levels will only be available to those completing higher-level qualifications, meaning many young people, and particularly women, most in need of support will struggle to finance their training.”
Young Women’s Trust advisory panel member Laura Davies, 26 from Bournemouth, said:
“As a young parent, business rates have the potential to affect my already struggling employer who could let me go. The increase for personal savings is redundant when most of the time it’s a struggle to make ends meet, with the rising costs of private rent and living expenses. As a young family, there still seems to be no promise of a secure future.
“Yet again the Budget is based on benefitting those with money in the bank of a certain age and gender. No matter how much they put into educating about women’s suffrage, women are still fighting for equality. In an age where maternity discrimination, sexual discrimination and gender bias is still rife, it’s strange to celebrate how we have supposedly overcome our problems.”
Young Women’s Trust advisory panel member Glynn Davies, 26 from London, said:
“With the continuous rise in living costs and even less hope of financial stability than my parents, the idea that I can save money and get on the housing ladder feels far-fetched. It doesn’t really feel like the Budget has much in it for young women like me, which leads me to feel even more disconnected to central government than ever before.”
The Supply Register: Why build schools without teachers to fill them?
Baljinder Kuller, who has over 15 years’ experience in education recruitment, and is now Managing Director of online supply teacher portal, The Supply Register, said;
“While it’s fantastic that the education sector has not been overlooked in what has been hailed by many as a ‘no-frills’ Budget, Hammond’s plans seem to outright ignore the existing issues that school leaders are currently facing.
“At a time when headteachers are protesting about a funding crisis in existing schools, directing funds into new schools seems bizarre – particularly when the National Audit Office is questioning if free schools offer value for money, with half of the 113,500 new places being opened in free schools by 2021 creating spare capacity in nearby schools.
“Aside from this, we need to take into account existing skills shortages in the education sector. Recent news that the number of graduates training to be teachers has fallen for the fourth year running, with a 2,000 shortfall in the number of people starting initial teacher training courses in 2016, is the latest in a long line of indicators that the current teacher recruitment crisis only looks set to worsen. Consequently, this money would be better invested in training and developing teachers to help mend damaged talent pipelines and fill existing vacancies. What’s the point of building new schools if there are not the teachers to fill them?”
Lucy-Rose Walker, CEO, Entrepreneurial Spark: NI Increases for self employed are counter-intuitive
Lucy said, “Increasing National Insurance rates for the self-employed could be a further step by the Government to penalise those who are taking risks and starting a business, often giving up their regular pay cheques to take a chance at creating something great. We believe there should be more, not less, support for entrepreneurs who are starting and scaling businesses. Removing the few remaining incentives of being self-employed is counter-intuitive and will lead to fewer enterprises and consequently fewer jobs.”
Chris Moore, President, Group Operations, The Adecco Group UK & Ireland: Current educational system is ‘ineffective’
“With Brexit and further automation on the horizon, the world of work will continue to change at an unprecedented rate. Yet, our research of UK businesses, carried out in partnership with the CIPD, shows that the current British education system is ineffective at providing youngsters with key business skills such as communication and teamwork. The recent announcement of the government’s plans to boost vocational and technical education in the UK is a welcome move to meet the evolving needs of businesses. With the apprenticeship levy coming into effect in April, employers now believe many of these key business skills are better acquired as an apprentice with 75% of those surveyed citing teamwork as best learnt in the workplace.”
“However, education and apprenticeships are just one part of the solution to solving the UK’s productivity issues and skills shortages. Those already in jobs will face new challenges as their roles, and the skills demanded of them, rapidly evolve. Organisations need to play a part and think strategically about the skills their workforce requires today, tomorrow and in the future and to engage and develop their employees accordingly. Alongside this new investment in vocational and technical education and apprenticeships for young people, this additional focus on the current workforce will help ensure the UK is ready to thrive in a post-Brexit environment.”
Adam Hale, CEO of Fairsail: Skills crisis: It’s ‘T’ Time!
Adam spoke about his frustrations at the skills shortages he experiences daily as a business in the software sector:
“£500m to spend on skills is a nice headline-grabbing figure, but it’s not nearly enough. Neither is it focussed on where we need to radically improve skills – in IT. We would really like to see more focus on the T in STEM (Science, Technology, Engineering, Maths) – we think it’s T-time!
We have a chronic IT talent shortage in the UK which we would like the government to address specifically – it’s a huge opportunity for the country.
As the UK’s fastest growing technology scale up, we have an acute need for technology professionals, yet it’s unbelievably difficult to find them. And with only 5,600 students studying Computer Science at A-Level in 2016 (600 of which were female!) vs 31,000 doing Sociology, it’s no surprise. We could be aiming for at least a tenfold increase here over the next five years, with females making up at least 30%.
In a world where every industry is rapidly digitising, we strongly encourage the government to make this a priority or scale ups like us will have to move technology off shore.”
Doug Monro, co-founder of jobs site Adzuna, on Phillip Hammond’s Spring Budget and chiefly the Government’s introduction of T-Levels and its renewed commitment to apprenticeships.
Doug Monro, co-founder of Adzuna: No room for complacency
“The jobs market played a significant role in today’s Budget and it is encouraging that the Government is not resting on the laurels of the 11-year low in unemployment that the Chancellor cited in his speech. The simplification of qualifications available will hopefully give those in education a clearer route to work and T-Levels will help technical students across a range of subjects. In National Apprenticeship Week, Phillip Hammond again reaffirmed the Government’s commitment to such schemes and also acknowledged the continued progress of disruptive technologies with a £270m pledge.
“The mention of apprenticeships may still conjure up images of Alan Sugar on reality TV, but they are becoming a valuable stepping stone for jobseekers of all ages. They help connect academic and practical skills and move candidates up the selection ranks by giving them valuable on-the-job experience. They offer jobseekers choice and opportunities to gain transferable skills, provide a taster into a particular career path, as well as transparency and information for those looking to switch roles or take control of their career path.
“With the process of Brexit underway the UK needs to up its productivity to stay in the game, so it’s great to see National Apprenticeship Week being celebrated to guide more young talent into the workforce as effectively as possible. We’ll certainly need to ramp up activity if we are to meet Government’s push to create three million apprenticeships in the private and public sectors by 2020 – there is no room for complacency as Hammond stressed himself. And that starts right now – there are currently more than 25,000 apprenticeship vacancies listed on Adzuna, with the engineering, admin and hospitality sectors offering the most opportunities.”
Sam Lee, Head of Recruitment at Bond Dickinson said:
“In his Spring Budget, Philip Hammond paid tribute to apprenticeship programmes with the outstanding figure of 2.4 million apprenticeship starts since the last Parliament. This is tremendous news. In the legal profession we perhaps have a reputation for the traditional but apprenticeships are helping us change this perception offering new alternative routes into the profession. The widening of access to a career in law through the introduction of apprenticeships has enabled us to drive social mobility and also open up opportunities to those who wanted to start their career sooner rather than later. Hiring apprentices is absolutely the right thing to do in our sector and as a firm we have hugely benefitted from the scheme.
“In addition, the introduction of the apprenticeship levy next month is presenting a great opportunity for us to invest further in our apprenticeship programmes and we’re delighted to have had the support of the business to allow us to do just that. The apprenticeship scheme at Bond Dickinson has been a real success and has delivered outstanding results for internal and external clients. Widely recognised as solid investment in the future of the business, we currently employ eleven apprentices, including seven legal apprentices, and we have been able to roll out further apprenticeships across other business functions and locations which now also includes a new solicitor apprenticeship in Newcastle.”
Jeff Fox, principal, Aon Employee Benefits: “Chancellor wishes to keep his powder dry.”
“It is clear that the Chancellor wishes to keep his powder dry for what promises to be an eventful 2017.
In the main, employers have got the Budget they’ll have wanted – they have a period of stability, not least with a single fiscal event from next year. This means we should no longer see the tax cliff-edge of current Spring Budgets leading to immediate tax changes in the new tax year, sometimes only a few weeks apart.
· Optional remuneration arrangements will become effective on the 6 April 2017 and while we await the outcome on some key questions ahead of 20 March when the detailed regulations should be published, no further updates were offered in the budget.
· Many employers are comforted by the salary sacrifice grandfathering arrangements in place until April 2018 (for most benefits) but this could be misplaced. It is fragile and easily disturbed. Employers need to watch out for post April 2017 as life event, new joiner and other business process changes may knock away the grandfathering provisions, causing optional remuneration arrangements to apply immediately.”
Debbie Falvey, DC Proposition Leader, Aon Employee Benefits
“Although the Spring Budget hasn’t created a migraine for HR and employers, there are still plenty of ongoing headaches about how to manage restrictions to pension savings such as the reduced MPPA.
“The Lifetime ISA will be an interesting addition to the ISA family, but there are ongoing doubts about how it’s going to interact with pension savings and continuing concerns about the impact on auto-enrolment opt-out rates.
“There is still a lack of detail about LISA and the providers ready to offer them. Employers will need to make decisions about how to implement them as part of their benefits strategy.”
Holly Cudbill, Associate Solicitor in the Employment team at leading law firm Coffin Mew said:
“Today’s announcement is good news for the country’s coffers, but not for the tens of thousands of people whose only source of income is in so-called gig economy work where they have no choice other than to accept the self-employed description imposed on them.
“As we know from the recently well-publicised cases, companies like Uber and Deliveroo are happy to fight their drivers and delivery people in the courts to try to maintain the company’s position that those individuals are self-employed.
“In these companies, if the drivers are employees, or workers, they would have a number of additional rights, including paid holiday, the right to the national living wage (which the Chancellor confirmed today will be increasing) and protection for discrimination. Many of the drivers lack the resources, confidence or desire to take on these massive international organisations and so have no choice other than to agree that they are ‘self-employed’. These people tend to be the lowest paid and will see their earnings take a further hit as the national insurance contributions they have to pay are increased.”
Marena Mieras, Senior Flexible Benefits Consultant at Mercer said,
“While there is little impact on benefits in the Spring Budget, there was a welcome commitment of £100m to fund additional GP triage services into NHS A&E by next winter. This will certainly help alleviate the pressures on waiting time for treatment. However, recognising that there is a current shortage of GPs in the system and recruitment is already an issue, it remains to be seen how these new services will be delivered. There was also welcome news for working parents of 3 and 4 year olds who will see their entitlement to free childcare doubled to 30 hours a week from September 2017. Tax Free Childcare is being launched in April as expected and will be rolled out to all eligible employees by the end of the year.
As indicated in the Autumn Statement, the Government has confirmed they will be calling for evidence on the exemptions and valuation methodology for the Income tax and National Insurance contributions treatment of benefits-in-kind. This comes hot on the heels of the Autumn Statement changes affecting salary sacrifice and is aligned with the Government’s rationale of making sure the tax system is fair and consistent for all. A planned Consumer and Markets Green Paper on protecting consumers by simplifying terms and conditions and providing greater enforcement powers against those who breach regulations could impact online benefits plans but it remains to be seen how broad a reach the Paper will cover.”