The public sector pay freeze will be extended for an extra year and employers’ National Insurance contribution threshold has been raised, the chancellor has revealed.
Unveiling the emergency Budget in the House of Commons earlier today, George Osborne announced the one-year public sector pay freeze, due to start in April 2011, will now be extended to 2012.
This freeze will affect all staff earning more than £21,000, but the 1.7 million public servants earning less than this will get an extra £250 a year during the freeze.
From April 2011, the threshold at which employers start to pay National Insurance will also rise by £21 per week above indexation, while companies set up outside the South East will not have to pay National Insurance for the first 10 employees hired for the next three years.
The chancellor pledged this policy would benefit 400,000 businesses.
Osborne also announce the government would launch a new consultation on the phasing out of the Default Retirement Age, and would accelerate the increase in the State Pension Age to 66.
But welfare provisions came under attack, with lone parents faced with returning to work once their youngest child goes to school, or losing their income support benefits.
Currently, lone parents do not have to start looking for work until their youngest child reaches 10 years of age.
Those on Disability Living Allowances will also have to undergo medical assessments from 2013 to prove they are entitled to the benefit.
The government’s cuts to the welfare bill will lead to a saving of £11bn by 2014-15, Osborne insisted.
The banks were not exempt, either. The chancellor announced that from January 2011 there will be a bank levy, which will raise £2bn a year.
Other taxes to rise include VAT, which will rise from 17.5% to 20% from 4 January, raising £13bn a year.
From April 2011, basic state pensions will also be re-linked with earnings.
Meanwhile, Osborne also announced that he expected the UK economy to grow by 1.2% this year and 2.3% next year, and rise further to 2.9% in 2013. But he warned by 2014 and 2015 growth would dip again to 2.7%.
HR professionals and experts contributing to Personnel Today’s live Budget blog said many of the announcements were “as expected”, but warned more cuts would come in the Comprehensive Spending Review in the autumn.
Roger Seifert, professor of industrial relations and HR management, said: “Generally it was much weaker on growth and business recovery than expected, but the attacks on welfare and jobs were expected.
“The real impact will be clear later when the government announces the detail of its plans for the public sector. It will be harder to manage public service workforces, it will be harder to deliver the current quality and quantity of public services, and it will lead to real unrest among public sector staff.”
Mervyn Dinnen of Courtenay HR consultancy, added the Budget was “very much as expected with a lot of benefits cut”, but he warned: “I still don’t see where the job creation will come from”.