Budget bombshell as chancellor cuts agency worker VAT concession

Alistair Darling’s first Budget, as Personnel Today predicted last week, was largely a dull affair, with commentators criticising both its content and delivery. But while no news would have been good news for HR professionals, the chancellor threw a giant spanner in the works by abolishing the VAT concession for agencies supplying temporary workers.

Tax and regulation

The staff hire concession, which enables employment agencies to charge VAT solely on the commission element of their supplies, rather than on the whole cost of placing a temporary worker, will be scrapped from April 2009.

Fiona Coombe, director of professional services at the Recruitment and Employment Confederation, said “the cost of taking on vital temporary staff would rocket” in sectors where firms cannot reclaim the VAT charged to them, including charities providing healthcare and social housing.

Legislation designed to prevent individuals transferring part of their income to spouses on a lower tax rate has been delayed. Campaigners said any new law would have adversely affected interim managers.

An Enterprise White Paper included a £12.5m fund to promote female entrepreneurship and a commitment to smaller businesses (SMEs) to gain a greater share of government contracts.

EEF chairman Martin Temple said: “The innovative package of measures designed to promote enterprise will tick many of the boxes for manufacturers and will go some way towards restoring the government’s reputation in this area.”


An extra £60m in funding for adult skills training, focusing on Level 3 (A levels). The cash will be used to underpin skills accounts – announced last year but yet to be piloted – and support employers taking on more apprentices. Both the CBI and TUC welcomed the investment. CBI chief Richard Lambert said: “Additional funding for intermediate skills and adult apprentices is welcome, as employer skills needs are often at these higher levels.”

TUC leader Brendan Barber said employers now had to make a real effort to increase equality and diversity in training places.

“We hope the commitment to give adults the chance to retrain will help people in redundancy situations or with outdated skills,” he said.

Public sector

A ‘public value programme’ that will look at all areas of public spending to see if there is scope to improve value for money. Strict control of public sector pay awards to be maintained. Opinion was predictably divided on this announcement. The CBI said the report recognised “the importance of competition in delivering better quality public services”, while unions claimed Darling’s words were more bad news for public servants, with workers having to swallow sub-inflation pay deals and morale being damaged further.

Senior public servants union the FDA said it supported moves to create more efficient government, but warned: “Too often ministers have simply focused on cost reductions with no serious analysis of the implications of cutting critical posts or other resources.”

Green issues

Businesses will be encouraged to use lower-emission cars by upping capital allowances. The changes will further incentivise companies that purchase vehicles outright to buy less-polluting cars. Matthew Hunnybun, partner at consultancy PricewaterhouseCoopers, said: “Employers can now formally plan the future of what is an important and expensive part of their operational business and reward strategy.”

Big incentives to encourage employers to go green were absent, and Darling was silent on pressure from environmental groups to make firms declare their carbon emissions.

Other measures

  • From April, key workers such as teachers and nurses will be able to borrow money from shared equity schemes.
  • From October 2009, rules for housing and council tax benefit will mean families on benefit are better off in work.
  • From April 2010, all long-term recipients of incapacity benefit will attend work capacity programmes.
  • New non-domestic buildings to become zero-carbon from 2019.
  • An extra £200m for schools to raise GCSE results. By 2011, every school “will be an improving school”.

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