The number of people projected to return to the workforce in response to the government’s Budget has been described as insignificant.
As a result of the expansion of childcare provision and tax breaks to encourage older people to stay in work for longer, about 110,000 will be brought back to work, found the Office for Budget Responsibility.
Independent think tank the Institute for Fiscal Studies described this number as “modest”. Paul Johnson, director of the institute, said the figure was “just a fraction of the number lost from the workforce in the past couple of years”.
He added that the projection was dwarfed by the annual net immigration figure of 245,000 and stated that with the labour supply package costing around £7bn a year, each job could cost about £70,000.
Meanwhile, the Resolution Foundation think tank has described pension tax changes as “poor value for money” because they may in reality encourage people to retire early – the opposite of what is intended.
Under the plans, the tax-free limit for pension savings during a lifetime will be abolished in April. Currently, people can save just over £1m before an extra tax charge is levied.
The annual allowance will remain in place, but will go up from £40,000 to £60,000. Those who are already drawing a pension, but want to save more will be able to put in £10,000 a year, up from £4,000.
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Chancellor Jeremy Hunt said the abolition of the lifetime allowance was the best way of discouraging NHS doctors and consultants from retiring early, reducing hours and turning down overtime for tax reasons.
However, the Resolution Foundation said the plan’s benefits had been overstated.
It added that it would cost around £80,000 per extra worker, and that giving pension savers “very large wealth boosts will actually encourage some people to retire earlier than they otherwise would have done”.
“It’s a big victory for NHS consultants but poor value for money for Britain,” said Torsten Bell, chief executive of the think tank.
The Institute for Fiscal Studies echoed the concerns, saying the move “probably won’t play a big part, if any, in increasing the number of people in work”.
Spoiler: the current pension lifetime allowance only impacts the wealthiest so removing it will do very little to change the workforce shortage except in some very niche positions” – David Williams, Towergate Health & Protection
However, others in the field welcomed the measure. Lewin Higgins-Green, managing director at FTI Consulting, said the tax changes were good news because “individuals and their employers can focus on how much is put into the pension pot, and will no longer have to be concerned that investment growth could create punitive tax charges in the future.
“Employers will want to ensure they continue to offer completive, and tax efficient, pension salary sacrifice opportunities to their employees, for both salary and bonuses,” he said.
David Williams, head of group risk at Towergate Health & Protection, said it was unlikely that the pension measures would help in solving the labour shortage. He said “Spoiler: the current pension lifetime allowance only impacts the wealthiest so removing it will do very little to change the workforce shortage except in some very niche positions.
“Sick employees are surely much easier to get back into work than retired employees. The removal of the LTA will rightly be seen as a positive step in the world of pensions and life assurance taxation, but will have little impact on the 2.5 million people inactive due to illness.”
The Labour party vowed to reverse the pension plan if it found itself in government after the next general election and would replace it with a scheme targeted at doctors, rather than a “free-for-all for the wealthy few”.
When it came to the childcare measures, experts welcomed the intention of the new policy but pointed out that problems within the sector needed to be tackled before employers would see benefits.
The Institute for Employment Studies said a more comprehensive plan to boost the childcare workforce, reduce costs and increase supply was needed, while the Resolution Foundation pointed out that the richest fifth of households were set to gain £180 on average from the extra childcare entitlement, compared with £130 for the middle fifth of households, and just £20 for the bottom fifth.
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