Business costs and pay claims will increase in Budget’s wake

Businesses
have been dealt a blow by the Chancellor’s Budget, with employers set to pay
around three-quarters of the £8bn tax increases. However, it’s not all bad
news, with the Government set to invest £40m in a training pilot scheme.
Quentin Reade reports

Chancellor
Gordon Brown’s most controversial Budget to date will have significant
implications for business and, in turn, HR professionals.

The
massive boost to NHS funding will largely be paid for by business. Tax
increases, including a rise in National Insurance, amount to £8.3bn – of which
employers will pay almost three-quarters.

The
tax rises will dissuade firms from increasing staffing numbers and could, in
some companies, lead to job cuts, claims the CBI.

It
estimates that a company with 10,000 employees will have to find an extra £1.5m
a year for wages on average, at a time when the strength of the economy is far
from certain.

There
are positives for business, however, with the Chancellor announcing a plan to
promote training, which will give employees time off work for skills
development.

Business
costs

Wage
pressures could be intensified by the 1 per cent increase in National Insurance
contributions paid by employers, employees and the self-employed on all
earnings above £4,615 from April 2003.

John
Philpott, chief economist of the CIPD, said the rise will lead to tense wage
negotiations. While staff will be pushing for additional wage increases,
employers will be trying to freeze the size of their payroll.

The 1
per cent increase in national insurance contributions will cost staff £3.3bn
and business £4bn. Philpott said: “Experience suggests that the higher payroll
costs will be shifted on to employees, but with employees’ national insurance
contributions being increased at the same time – and the jobs market being
tight – employees will resist this.”

Philpott
warns that many businesses will only be able to meet wage demands by reducing
staff numbers or increasing output. Consignia, for example, will need to pay an
additional £35-40m a year. It employs more than 200,000 people and wages
account for 70 per cent of its costs.

He
said: “It offers an incentive to increase productivity. On a day-to-day basis,
that can be more difficult, but [HR will] need to rise to the challenge.”

The
British Chambers of Commerce warns that heightened taxation will hit employment
prospects next year. “The timing couldn’t have been worse,” said Ian Fletcher,
head of policy at the BCC. “Just at the point where businesses start recruiting
again, the National Insurance increases will start feeding through,” he said.

Industrial
sectors are likely to be hardest hit. Martin Temple, director general of the Engineering
Employers Federation, said: “The last thing manufacturers needed from the
Budget was a major hit to their cost base. While we welcome the research and
development tax credit and the measures for small firms, these will provide
minimal benefit compared to additional costs of more than £3bn a year.”

Training

Leading
industry figures have welcomed the training initiatives announced in the
Budget, but some warn that the programmes need to be well planned.

The
Government is to invest £40m in a pilot scheme that subsidises employers who
give staff time off to improve qualifications.

The
Chancellor said in his Budget speech: “Thousands of employers are unable to
recruit the skilled staff they need because training is so poor.

“Employees,
employers and the Government must each accept their responsibilities, and we
shall finance pilot projects where participating firms

give
staff time off to gain new skills, in return for the Government providing free
access to training courses and support for wage costs,.”

The
scheme will enable employees to improve basic skills and offer employers
between 75 and 125 per cent of the wage costs of participants.

Initially
the scheme will operate in six Learning and Skills Council areas and offer
training roughly equivalent to GSCE standard. It is anticipated the grants will
be replaced by a new tax credit system if the scheme goes nationwide after the
pilot finishes in August 2003.

Will
Hutton, chief executive of the Work Foundation, said it is a bold and positive
step for workforce development.

“In
our view it is the most significant policy announcement to stem from the
Cabinet Office’s recent investigation into the

links
between workplace development and improving productivity and a real attempt at
breaking apart the UK’s longstanding ‘low-skill equilibrium’,” he said.

The
CIPD’s Philpott, however, warns that the type of training undertaken by people
must be appropriate for them and guidance is needed to inform this choice.

He
also said that training should not be viewed in isolation – there is no point
trying to encourage staff to take time off work to train if, through separate
legislation, it is becoming more difficult for organisations to hire temporary
staff.

The
REC’s chief executive Tim Nicholson called for the system that supports the
training to be simple and accessible for empl-oyers. “The proposed Employer
Training Pilot sounds like good news, as long as it isn’t strangled by red
tape,” he said.

www.hm-treasury.gov.uk

Payroll
guidelines

The
Chancellor also called on employers to move towards e-filing when dealing with
payroll. The Government set three deadlines:


Employers of more than 250 staff are required to file electronically from
2004-05


Those with 50 or more employees will be required to file electronically from
2005-06


Incentive payments, recommended to encourage smaller employers with fewer than
50 employees to file electronically, will begin from 2004-05

Electronic
filing of employer returns will become compulsory from 2010

The
Budget at a glance


A 1 per cent increase on National Insurance contributions for employers,
employees and the self-employed


The launch of a new training programme that will allow employees time off work
to improve skills


£400m of tax credits for research and development


National health spending is to increase from £69.7bn to £72.1bn in 2003-2004

 

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