Pre-Budget Report detailed analysis: the implications for HR

National insurance contributions

The rise in national insurance contributions (NICs) was seen as the main issue for most. Sean Wheeler, HR director at hotel chain Malmaison and Hotel du Vin, says he is surprised the threshold was set so low, with those earning as little as £20,000 a year being hit by an extra 0.5% rise in April 2011 on top of the planned 0.5% increase.

“This will impact around 70% of our workforce,” he says. “We also have things like service charges going into taxable earnings, and that has a big impact on our food and beverage staff.” Many organisations, including his own, are unlikely to award any kind of pay rise in 2010, he adds.

“The other thing to take into account is the cost of pension schemes,” says David Albone, HR manager at Connect Housing. “We run a defined benefit scheme and we’ve just had a review saying that there is a deficit and that everyone’s contributions are going to have to go up. Salary increases will be very minimal – probably around 1% – and now we have the NI increase so most people’s salaries will probably go down. It’s not welcome news.”

Others went further still. “The chancellor has made a serious mistake imposing an extra jobs tax at a time when the economic recovery will still be fragile,” says Richard Lambert, director-general at the CBI. “Increasing the national insurance contribution will hold back job creation and growth.”

“This will cost us £1.5m per year, in addition to the extra £1.5m already announced in the previous budget,” adds Des Thurlby, HR director at Jaguar Land Rover. “That is a £3m increase in our employment costs. National insurance is a tax on jobs. We need to be careful that the UK remains competitive as a place to employ people.”

VAT rates

For Helen Giles, HR director at charity Broadway Homelessness and Support, the other big issue is the increase in the rate of VAT, which has reverted to 17.5% as originally intended having been reduced for 12 months in 2008. Coming on top of the removal of the staff hire concession for charities in the social care sector using agency labour which came into force in April, this will have a hugely detrimental effect.

“We’re going to be disproportionately impacted by the increase in VAT and the 0.5% rise on NICs,” she says. “We’re facing a budget deficit as a result of this and we’re going to have to make more reductions in pay. We’re not going to be able to attract the quality of people we need, and the result will be more social problems.”

Education and employment

The pledge that it will always be more financially attractive for individuals to work than receive benefits, and that places in training or education will be available to all 16- and 17-year-olds, however, is positive news, says Jonathan Cawthra, group resources director at affordable housing provider Affinity Sutton.

David Coats, associate director at The Work Foundation, highlights the policy of finding a job for all those aged under 25 after six months without work. “Keeping young people in touch with the labour market is the right thing to do in these challenging times,” he says.

Public sector pay cap

Another move broadly welcomed by HR directors in the private sector is the cap on public-sector pay increases of 1% for two years from 2011. “In a way it’s a good thing for us because it reduces the expectation of our staff to track higher increases, but I can see that it will seem very unfair to those working in public services,” says Giles. Wheeler, though, points out that this will also be the situation in many private sector firms over the next two years.

Corporation tax rate

The 10% rate of corporation tax on profits arising from patents in the UK may have a positive impact in the automotive sector, says Thurlby, especially in the low-carbon arena. “As one of the biggest research and development activities in the UK, there may be something in the detail of these proposals that can help us to continue our substantial investment in green technologies,” he says.

Childcare vouchers

Yet the Pre-Budget Report was almost as significant for what it didn’t contain as what it did. The rumoured scrapping of the childcare voucher system, which makes it viable for many parents to return to work having had a baby, did not materialise, to widespread relief.

“That would have had an impact on our staff,” admits Albone. “There are some key members of staff here who have been here for a long time who would have left us if we hadn’t brought in childcare salary sacrifice schemes. It would put pressure on the lower earners as well, such as those who are part-time.”

For Cawthra, though, the silence on this issue was unsettling. “Even a move to limit tax relief to basic rate would have been helpful in encouraging a return to work,” he says.

Minimum wage

“I thought there may have been an announcement about freezing the minimum wage,” adds Wheeler. “The differentials are being eroded because people aren’t getting increases unless they’re on the minimum wage. There’s no benefit to improving or trying to get promotion because you could be earning the same amount of money.”

Recruitment costs and training 

Albone at Connect Housing, meanwhile, says he would have welcomed a move designed to cut the cost of recruiting staff and more initiatives to encourage employers to take on people with a view to training them in-house over a long-term period.

The election

The fact that an election could mean many of the measures outlined in the Pre-Budget Report are not implemented is also unsettling, he adds. “A lot of people will be wondering where we’ll be in six months’ time,” Albone says. “Are people going to go for anything that they bring in – such as the new funding for job centres in January – or are they just going to see what happens when the election comes round?”

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