The Recruitment and Employment Confederation has said the reversal of the prime minister’s mini budget changes was a sign that ministers had recognised that ‘tearing things down’ was insufficient to shore up the UK’s perilous economic situation.
Neil Carberry, chief executive of the REC, said: “The most important part of generating growth is the hard work that needs to be done on issues like skills, getting more people into the labour market, and the tax system. There are no quick fixes. It is not enough to tear things down – we need to take time to build.
“Just as scrapping changes on IR35 did not solve the problem of a complex and poorly enforced system, keeping them will not make these issues go away either. We have had too many employment-related policy decisions drafted from the headline down – it is time to start working from the workplace up, in partnership with employers and employees.
“Ahead of any further interventions by the chancellor, incentivising business to invest in skills and make it easier to recruit and retain staff should be front of mind. One simple amend would be to finally reform the failed apprenticeship levy. The economy has suffered but demand in the UK labour market remains strong. Policies to maintain and increase that strength should be the focus as another mechanism for calming the markets and working towards a more productive, better paid workforce,” he added.
Penny Simmons, legal director at multinational law firm Pinsent Masons, said the reversal of IR35 reforms was likely to be met with relief from businesses in the short term.
She said: “In the longer term, IR35 still doesn’t work properly and needs to be heavily reformed. However in the short term, businesses will be relieved that they don’t have to scrap all the work they have done in the last few years to be compliant with the current rules.”
The 2021 rules were still much too burdensome in requiring businesses to take legal responsibility for all the contractors and third parties in their labour supply chains, she said. Pinsent Masons added that far-reaching reform of the system now needed to take place. She added that the 2017 version of the IR35 rules had led to widespread tax avoidance and didn’t work either.
“It would be good to see the Treasury take this opportunity to undertake a comprehensive review of the IR35 rules and commit to real reform. That should include dealing with one of the major issues with IR35 – the complex test for determining whether someone should be an employee or self-employed.”
Simmons added: “There can never be a return to the ‘old way’ of handling off-payroll work, involving contractors being paid through personal service companies. The tax risk landscape has shifted hugely over the past five years. The introduction of corporate criminal tax offences means that businesses must now have far greater oversight of their supply chains.”
At least the turmoil of yet another reversal and transition to another IR35 regime will be avoided” – Lee McIntyre-Hamilton, Keystone Law
Keystone Law’s employment tax specialist and partner Lee McIntyre-Hamilton said the government should focus on supply-side reform to really increase productivity and growth across the UK.
He said employers would be heartened by the focus on economic stability as there was no point in tax cuts for either employers or employees when the markets were in turmoil and interest rates and inflation were rising uncontrollably. Supply-side reform – improving infrastructure, addressing inequality, attracting new investment and all those things that increase productivity across the country – should be the focus for ministers now.
However, he added: “Less welcome will be the reversal of the reform of IR35 since it means that employers and other engagers will continue to be required to assess the employment status of contractors and to operate PAYE and NIC where contractors are deemed to be self-employed. At least the turmoil of yet another reversal and transition to another IR35 regime will be avoided.”
TUC general secretary Frances O’Grady said: “Hunt slamming the gears into reverse now won’t help families and businesses already hit by soaring borrowing costs.
“People needed reassurances today. Instead, they got more uncertainty – about energy bills, about our public services, and about whether universal credit and benefits will rise with inflation.
“The chancellor should have announced a boost to universal credit and pensions, and a comprehensive plan to get wages rising faster for everyone. And he should have announced a much higher windfall tax on oil and gas giants.”
On the announcement of a review of support for families and businesses with energy costs beyond April 2023, she added:
“Families and businesses now face months of worry. There is going to be less help with bills – but no-one knows who will lose out, by how much, or whether there will finally be a programme to fix Britain’s cold and draughty homes. This is not the reassurance working families need.”
There are no quick fixes. It is not enough to tear things down – we need to take time to build” – Neil Carberry, REC
Kitty Ussher, chief economist at the Institute of Directors, said it was vital for ministers to restore confidence: “It is of course right for the government to focus on restoring stability and confidence – without that growth is impossible. As our members have told us, the number one negative issue for their businesses at the moment is ‘UK economic conditions’. Confidence is also extremely low, which in turn causes businesses to invest less, constraining growth further.
“Having said that, we are relieved that the employers’ national insurance reversal will proceed, since our members have consistently told us it only added to the supply-side pressures they were experiencing, which is why we had campaigned hard for it to be reversed over the last year. Given the difficult investment climate, it is also sensible to maintain the Annual Investment Allowance at the higher figure of £1m.”
The IoD Directors’ Economic Confidence Index, which measures business leader optimism in prospects for the UK economy, registered a value of -43 for the month of September.
When asked in September which factors are having a negative impact on their organisation, the most popular answer was “UK economic conditions” (55%).