Budget Breakdown: Employers’ reaction to the chancellor’s announcements on tax, unemployment, public sector pay and more

The Budget 2010 contained some measures to help small businesses grow post-recession and touched on how the public sector would attempt to claw back spending, including the relocation of a third of civil servants outside London. But how far did the chancellor really go to alleviate employers’ concerns over rising taxes, long-term unemployment and skills shortages? Personnel Today’s Budget Breakdown reveals all.


TAXES


What happened:




  • Confirmation of the 50% tax rate on earnings over £150,000. This means the UK will have the second most expensive tax regime for senior executives among the G20 countries, behind Italy.


  • No move to shelve the national insurance one percentage point rise in 2011 – affecting all those who earn £20,000 or more.


  • Confirmed proposals for restricting the higher rate tax relief on pension contributions.


  • No increase in capital gains tax rates for companies and individuals.

Business reaction:


Employers warned the 50% tax rate will affect the UK’s competitiveness. Ben Wilkins, director at top graduate employer PricewaterhouseCoopers (PwC), said: “We’re already seeing an impact on companies’ decisions about where to locate their top executives.”


Gillian Hibberd, former president of the Public Sector People Managers’ Association and HR director at Buckinghamshire County Council, said: “The continuing freeze on public sector pay along with tax changes and the new tax regimes on high earners’ pensions will create a triple whammy at the top end. Will the public sector be able to attract talent into top jobs?”


Meanwhile, the Chartered Institute of Personnel and Development (CIPD) warned the pensions tax relief changes were “complex, confusing and bureaucratic”, and the Recruitment and Employment Confederation said it was “disappointing” that the chancellor did nothing to prevent the National Insurance hike.


Manufacturers’ body the EEF welcomed the freeze on business rates.


PUBLIC SPENDING CUTS


What happened:




  • As expected, the chancellor did not outline public spending cuts to reduce the country’s £167bn deficit, because the government believes cuts would hamper economic recovery.


  • A third of London’s civil servants will relocate to rural areas to save money.


  •  Public sector organisations were urged to make efficiencies, but no details were outlined.

Business reaction:





Were employers’ wish lists ignored?


Personnel Today asked leading employment bodies what they wanted the Budget to reveal prior to the chancellor’s announcement today. Our top 10 wish list documented employers’ concerns about rising taxes and a call to delay the implementation of new employment laws. Employers wanted greater certainty about public sector cuts, and a clear deficit reduction plan. E-mail your comments on how far you thought the Budget went to address employer issues to louisa.peacock@rbi.co.uk


During Personnel Today’s live blog, employers were not convinced that the chancellor went far enough. Steve Coventry, head of the EEF, said: “Well… did [Darling] do enough to convince the markets that he has a credible plan to reduce the deficit? Probably not.”


He added there were “bits and pieces” in the Budget for business – namely new measures to ease access to credit, the doubling of investment allowances, and the one-year exemption on business rates. Gillian Hibberd, former PPMA president and HR director at Buckinghamshire County Council, added: “I’m starting to feel a ray of optimism for the public sector. Or do I speak too soon? No further cuts in public spending announced.”


Employers were sceptical that relocating civil servants would help save a significant amount of money. Charles Cotton, CIPD reward adviser, said: “Relocating 15,000 civil servants will not deliver efficiency savings if these individuals are allowed to keep their London salaries. Indeed, if this happens it could create more difficulties in public sector pay by distorting regional pay rates.”


UNEMPLOYMENT


What happened:




  • The chancellor extended the jobs guarantee for young people until March 2012. This will allow 18- to 24-year-olds to be entitled to training or a job if they have been out of work for six months or more.

Business reaction:


The CIPD praised the extension of support for the young unemployed, but called for more support for the over-50s. John Philpott, chief economist, said: “What older workers need is real help now to avoid the risk of a slide into long-term unemployment and premature de facto retirement that few can comfortably afford. We’re therefore disappointed that the jobs guarantee has not been extended to older workers.”





Personnel Today’s Budget blog


Click here for full coverage of Personnel Today’s live blog, which took place yesterday afternoon as the Budget announcements were being made.


PUBLIC SECTOR PAY AND PENSIONS


What happened:



Business reaction:


The Budget did not go far enough to help protect jobs, according to the CIPD. Charles Cotton, reward adviser said: “Freezing public sector pay for top earners and endeavouring to ensure that public sector pay awards in general are not higher than 1% from 2011 is not enough. We need a freeze in the overall pay bill.”


EMPLOYMENT LAW


What happened:




  • Confirmation that the government is considering scrapping the default retirement age (DRA), or raising it. A final decision is expected in the summer.


  • A moderate increase in the national minimum wage (NMW) confirmed.

Business reaction:


Some employers were expecting more. Chris Ball, chief executive of The Age and Employment Network, said the Budget should have been used to scrap the DRA. Carol Dempsey, reward partner at PwC, urged employers to consider managing different generations in the workplace if the DRA is scrapped. “They will need to reassess the role that a traditional pension scheme plays in the overall employment deal,” she said.


Meanwhile, the CBI said the moderate NMW increase recognised that many businesses were struggling.


GREEN JOBS AND INVESTMENT


What happened:




  • The government announced a ‘green investment bank’ to encourage private sector investment in renewable energy, which could create thousands of jobs.


  • The government will maintain support for science, technology, engineering and maths (STEM) subjects with extra funding.

Business reaction:


Employers urged the government to take a long-term view on the low carbon economy. Rachel Whittaker, a senior consultant at Mercer, said ministers must promote investment “in a broad range of projects that provide genuine positive environmental and social benefits”.


The EEF said employers would welcome investment in STEM subjects.

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