HR budget analysis

Alex
Blyth looks at the HR implications of the latest budget

There
was much of interest to HR practitioners in Gordon Brown’s latest Budget. The
fear prior to last Wednesday’s announcement was that to reduce a ballooning
deficit without alienating voters in the run up to a general election, the
Treasury would impose further taxes on business. In the end, however, there was
little cause for fear as the Chancellor contented himself with a series of
relatively minor measures, most of which have won the approval of the business
community.

Job
cuts

With
a budget deficit now reaching £38bn, the Government either needed to make some cuts
in spending or increase taxes. It went for the former, and it came as little
surprise that the axe came down on the civil service.

At
least 40,000 jobs will go in an attempt to save £20bn. The civil service
employs 512,000, so these cuts will not be insignificant. The majority of
losses will be at the Department for Work & Pensions, and most of the
remainder will come from merging the Inland Revenue with Customs & Excise.

The
CBI welcomed the announcements, arguing that the private sector has been
becoming leaner and more efficient for quite a while, and that it is time for
the public sector to catch up. However, most civil service unions were furious
at the way in which the announcement was made.

“It’s
just playing politics with people’s jobs,” said Jonathan Baume, general
secretary of the FDA, the trade union and professional body representing senior
civil and public servants.

“We’ve
been talking closely with the Government recently about a range of issues and
this was never mentioned, so it came as a real shock. Moreover, there weren’t
any specific details of where the cuts will be made and how they’ll be
achieved. So this announcement just creates a climate of uncertainty which
won’t help anyone.”

Taxation

Business
has welcomed changes to the pensions system, whereby eight different sets of
taxation rules have been replaced with one universal limit on how much a person
can save towards a pension without paying tax on it. The limit will start at
£1.5m when the new regime is introduced in 2006, and it will rise to £1.8m by
2010. Most commentators have also welcomed the Chancellor’s decision to phase
this new system in over a few years.

Similarly,
plans to pay Working Families Tax Credits in cash rather than through the
payroll have also been welcomed. Not only will these payments now go directly
to the person who most needs them, but the administrative burden on business
has been removed.

Skills

The
Chancellor placed considerable emphasis on the need for the UK to become more
productive. The Treasury document supporting the Budget stated: ‘The UK has
historically experienced low rates of productivity growth compared to other
major economies. Recent data indicates that, on an output per worker basis, the
UK now has higher productivity than Germany, and is closing the gap with
France.’

However,
the UK still lags some way behind the US, and the Government aims to close the
gap. Two key announcements on this were increased spending on education, and a
New Deal for Skills.

Education
spending will rise from £59bn to £77bn in 2007-8, representing an annual
increase of around 4.4 per cent a year. It is a significant investment. In
England, state funding per pupil will rise from £4,500 in 2004 to £5,500 by the
end of 2008, making it twice the 1997 level. Susan Anderson, director of HR
policy at the CBI, has welcomed this investment.

“Less
than half of UK schoolchildren achieve a grade C or above in English or maths
GCSE, and this results in significant literacy and numeracy problems in the
workplace. More money is needed to address this, but it must also be introduced
gradually," she said. "At the moment, we’re short of about 3,500
teachers in maths alone, so just pouring in more money too rapidly wouldn’t have
the desired result.”

Under
the previously announced New Deal for Skills, every adult will be guaranteed
the chance to acquire NVQ level 2 qualifications. A number of centres will be
set up offering advice on how to acquire skills to build careers, and employer
training pilot schemes will be extended.

John
Philpott, chief economist at the Chartered Institute of Personnel and
Development, has mixed feelings about these announcements. “Our view is that
skills alone are not enough to raise productivity," he said. "They
must be skills that are geared to the needs of the business, and good HR
practice must ensure that they are used effectively. So, we’re not convinced by
the emphasis on qualifications, and worry that the Government might be
overlooking the importance of work-based training.”

Claire
Donovan, education and skills policy adviser at manufacturers organisation the
EEF, broadly agrees. “When it comes to learning and development, it isn’t
enough just to give time off for training," she said. "It is essential
for that training to be geared to the needs of the business. So, we’re glad the
Government is extending the employer training pilots. We had hoped for a more
specific statement the release of funds for modern apprenticeships, as all this
extra training will have to be paid for.”

Minimum
wage

Last
week, the Government also announced further rises in the national minimum wage.
For over-21s, the hourly rate will increase from £4.50 to £4.85. For
18-21-year-olds, it will go up from £3.80 to £4.10. A new minimum wage of £3
for 16 and 17-year-olds was also introduced.

While
children’s charities welcomed the move and unions continued to call for a
minimum wage of £5, the CBI has joined other employers’ organisations in
warning against any further increases.

Anderson
of the CBI said: “This means that it will have gone up by 15 per cent in two
years – 1.7 million workers are now affected, and it’s really beginning to bite
in some sectors such as retail and leisure. The Government needs to be careful
about how it moves forward in this area.”

Comments are closed.