With a black hole at the heart of the nation’s finances, yet an urgent requirement to encourage growth and investment, tomorrow’s Budget is exciting plenty of fevered anticipation, writes Adam McCulloch
From increased bus fares to the term “working people”, to employers’ national insurance rates, speculation around tomorrow’s Budget has reached fever pitch.
The central problem chancellor Rachel Reeves must confront is that the UK doesn’t have very much money, given the eye-watering £22bn black hole identified at the heart of the nation’s finances. Austerity, Brexit, Covid, lack of investment and productivity are all factors, as ministers wrestle with trying to appease the public, different types of employer, the financial markets and unions.
Savings today to spend more in three or four years is not the way to underpin public services or bring the tax burden down” – Neil Carberry, REC
Reeves’s aim appears to be to fix public services while encouraging growth and investment. At the same time, ministers say a fresh austerity affecting workers must be avoided. It all adds up to an unenviable task.
With the Employment Rights Bill potentially creating new costs and risks for employers, it is understandable that businesses are particularly twitchy about Reeves’s announcement tomorrow, particularly as the predicted hike of 1-2% in employer national insurance contributions comes to fruition.
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However, there are ways in which employers can alleviate the impact of added taxes. According to Gary Smith, partner in financial planning and retirement specialist at Evelyn Partners, firms could look to salary sacrifice pension schemes to offset cost of the employer national insurance hike.
He says: “An opportunity may arise for employers to offset some of this cost through the use of a salary sacrifice pension scheme, including bonus sacrifice, where that’s not already in place.”
However, Smith also warns that Reeves could announce a crackdown on salary sacrifice schemes to protect the revenue that national insurance could raise.
But policies and change are not only driven by the Budget: yesterday the government launched its much heralded £240 million Getting Britain Working package to include work, skills and health support for disabled people and long-term sick.
The measures received little media comment: it appears that the definition of “working people” is of far more importance to broadcasters than the fact that the UK remains the only G7 country that has higher levels of economic inactivity now than before the pandemic, with 2.8 million people out of work due to long-term sickness.
The funding is partly set to go towards boosting the rollout of Get Britain Working “trailblazers” in local areas, which are designed to join up and streamline work, health, and skills support for disabled people and those who are long-term sick.
Back to tomorrow’s Budget, Neil Carberry, the Recruitment and Employment Confederation chief executive, says encouraging investment must be the number one priority.
He says: “This Budget must show an appreciation of our workforce challenges if it is to drive growth. Business and public investment underpin growth, so boosting these needs to be a priority over short-term issues.”
Carberry warns: “Savings today to spend more in three or four years is not the way to underpin public services or bring the tax burden down.”
But improving skills, engaging youth, increasing job security are all factors that can improve productivity and growth. And measures to encourage these will cost money.
Skills and youth
Perhaps the CIPD better recognises this with its focus on skills and youth employment as a way of unlocking the UK’s potential. It is calling on the government to increase apprenticeship opportunities for young people, encourage innovation, and improve labour market enforcement.
Ben Willmott, head of public policy at the CIPD, says: “The Budget will be a key moment for this new government to signal how it intends to deliver its ambition to boost growth and improve living standards. There is an urgent need for the government to work in partnership with employers to create policies that boost investment in skills, management capability and technology adoption across the economy.”
He adds that the CIPD is calling on the government to introduce an “apprenticeship guarantee” to provide an apprenticeship at level 2 or 3 for all 16-to-24-year-olds with the necessary minimum qualifications.
Also on the CIPD “would like” list is a new £50 million partnership fund to help sectors improve management capability, skills development and technology adoption.
Productivity pilots
Additionally, the CIPD wants to see the government set up and fund “workforce productivity pilots” in the public sector to help improve innovation and effectiveness.
Acas needs more resources, says the CIPD, and money also needs spending on employer compliance – the creation of a Fair Work Agency (under the Employment Rights Bill) is not enough on its own.
As the UK awaits the minutiae of ministers’ deliberations on tax rises and analysts prepare to calculate how we are all affected, it would be as well for employers and employees to remember that, amid the grumbles, the chancellor’s job is to provide conditions in which future growth and investment can take root.
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