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

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.”


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 thelinks 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.


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