Chancellor George Osborne has announced his 2013 Budget to Parliament – referred to by the chancellor as one for an ‘aspiration nation.’
Read on for our analysis of how new measures introduced could impact the HR function.
You can keep up with comments on the budget by following hashtag #Budget2013 on Twitter.
- Tax incentives for low emission cars – employees increasingly want employers that commit to helping the environment. Now that low-emission cars have been further incentivised, businesses may wish to take advantage in order to boost employee engagement
- Tax relief for investment in social enterprises – HR functions looking to increase their commitment to corporate social responsibility may find that investment in social enterprise is an attractive option, with positive effects on reputation
- Income tax allowance raised to £10,000 from 2014 – this will have an effect on payroll departments so HR should prepare early. Those that outsource payroll functions may wish to discuss this with their supplier
- Stamp duty axed on shares traded on growth markets – growth markets such as AIM provide options for smaller businesses to float shares. The regulatory environment is more flexible than the primary stock exchange and the stamp duty change makes it more attractive
- Single flat-rate pension of £144 a week brought forward a year – as people look to work later in life and workforces become older, HR must pay attention to all potential shifts in older peoples’ finances and how they can support them more effectively
- Capital Gains tax relief on firms that sell shares to employees – share ownership is a great way to motivate employees and promote engagement. This policy will make this option more attractive financially to businesses and will help HR make the business case to senior leaders
- Tax-free loans to employees doubled to £10,000 – the maximum value of tax-free loans employers can provide to employees will double from £5,000. This will allow HR to increase the size of their catchment area for new employees and increase the value of benefits offered, which may fuel engagement
- New tax-free childcare vouchers – working families will receive 20 percent off the first £6000 worth of childcare costs for each child. Low-income working families on universal credit will also receive increased support. HR will need to analyse how these measures impact their working parent policies and whether they need to sit down with each parent and ascertain if their needs have changed
- New employment allowance to cut National Insurance – each firm will save £2000 due to a new employment allowance. HR will need to work with the finance function work out where this saving will be passed.
- Corporation tax will be cut by one percent to 20 percent in 2015 – savings may be funnelled back into the business. HR should make sure it takes part in any discussions over these savings to see if it can benefit
Other key measures introduced in the 2013 Budget:
- From 2015-2016 until 2020, £3bn will be given each year to new infrastructure projects (total of £15bn)
- 450,000 small firms will no longer pay employer National Insurance
- Economic growth forecast at 0.6 percent this year, downgraded from 1.2 percent in December
- Bank guarantees to underpin £130bn of new mortgages from 2014 for three years
- Borrowing will be £114bn this year – more than the £108bn forecast
- 600,000 new jobs expected this year than at the same period last year
- Bank of England remit to change to focus on growth as well as inflation
- Two percent inflation target to stay in place
- Most government departments will see budget cuts of one percent over next two years but NHS and schools will be protected
- Beer duty cut by 1p a pint
- The planned fuel duty rise has been scrapped
- Service personnel to be exempt from public sector one percent pay rise cap
- Introduction of tax avoidance/evasion measures, including schemes with Jersey and Guernsey, designed to recoup £3bn in unpaid taxes
HR should consider the way employees will respond to certain announcements. Osborne’s announcement that a sizeable package of measures designed to target tax avoidance and evasion comes in response to growing public concern over high-profile companies failing to pay their tax bills. HR functions have a great opportunity to engage employees by being transparent over tax issues and making it clear the company is ‘doing its bit’ for the economy.
Reponses to the Budget
As always, opinion has been mixed. Some strong economy-boosting measures, such as the increased investment in infrastructure and housebuilding, have been praised, but there’s been a lot of attention paid on where the Budget has ‘fallen short.’
Criticism has been levied over the perceived lack of measures aimed at tackling the skills gap and providing more options to school-leavers.
Peter Searle, CEO of Adecco Group UK & Ireland, commented on today’s Budget announcement: “Today’s Budget simply doesn’t go far enough towards tackling the needs of school and university leavers who continue to struggle in their search for employment. Whilst this budget has made positive steps to address specialist skills gaps, and increase opportunities for apprenticeships, the Chancellor has largely ignored the huge numbers of unemployed young people whose skills and experience fall outside these ‘key’ sectors.’
Ann Pickering, Telefónica UK’s HR Director, commented: “The Chancellor talks about building skills to ensure, as a nation, we’re equipped to compete on a global stage. But when the country’s growth depends on the digital economy there’s still a huge pool of untapped skill going to waste with our most digitally literate citizens, young people, more likely to be excluded from the workforce than any other group. Their digital skills are the future fuel of the economy and more must be done to harness them.
“Government can’t tackle this challenge alone. All businesses have a role to play in supporting young people on their journey to work. Whether through work experience, mentoring or making digital skills central to their hiring strategies, we all have a responsibility to create a workforce that’s fit for the digital future and with it put Britain’s economy back on the road to growth.”
There’s also been concern the Government won’t be able to implement the single flat-rate pension of £144 a week and that this will have a knock-on effect on employers. Some groups are worried about how the pension changes would affect employers with final salary schemes.
Peter McPherson, Senior Technical Advisor with Capita Employee Benefits, said: "While this is welcome news for imminent pensioners, it is an ambitious timetable and we hope that government is able to meet it. Defined benefit schemes would, of course, be affected earlier as defined benefit contracting out would end at the same time."
Responding to the new 20 percent childcare scheme launched, AccountingWEB.co.uk tax editor Rebecca Benneyworth commented: “It’s becoming clear that this is intended to replace employer-supported child care vouchers. The operation of the employers’ scheme became quite clumsy since they changed it in 2011. If that’s going to go, it’ll be a welcome simplification.”
David Palmer, solicitor in the employment team at national law firm Dundas & Wilson, commented on how working mothers would be affected by the Budget.
“Mr Osborne’s Budget will introduce a raft of employment related taxation measures designed to aid working mothers. These measures may, either by design or incidentally, also stimulate growth. Before I start, this analysis of the Budget is based on the (accurate) stereotype that across the population females, especially working mothers, are more likely to work part-time and be lower earners than male employees. On that assumption, it appears that Mr Osborne’s measures should increase the number of working mothers and leave them with more cash in their pockets on pay day, thereby putting more disposable income into the economy.
“The most obvious mother-friendly measure in the Budget is the introduction of the new tax-free childcare vouchers for working families which will give 20 percent off the first £6,000 of childcare costs for each child and increase childcare support for low-income working families on universal credit. This measure will clearly help working mothers. It may entice stay at home mothers back to work, and that appears to be the aim behind the measure. This has proven one of Mr Cameron’s more controversial policy aims for which he has received much criticism in the last 24 hours, as it has been seen by some as a slur on stay at home mothers.
“Less controversially, Mr Osborne has introduced two other measures which should leave working mothers better off when it comes to their pay. The Government intends to raise the income tax threshold to £10,000 by 2014. For many mothers who work part-time and/or are low earners, this will result in extra income every month compared to now. Mr Osborne has also stated that employers’ national insurance contributions are to be reduced. This may promote employers to make more shifts available to part-time employees, which would have a proportionately greater impact on working mothers than on working fathers. Again, this should result in more income for working mothers.
Iain Hasdell, CEO of the Employee Ownership Association, branded the measures on employee ownership "a good start."
He added: "Whilst our advocacy of tax incentives for business that transition into employee ownership has been heard and acted on, it is disappointing that we must wait another year for the Government to turn its frequent words of support for employee ownership into bolder actions.
“Even at this late stage I hope that the Chancellor will consider re-allocating the £100m dedicated to the now infamous rights for shares scheme that forces workers to sacrifice a range of fundamental workplace rights in return for tax breaks on shares they have in the company they work for. £100m would be better used on further tax incentives to encourage genuine employee ownership that creates businesses with lower staff turnover, higher productivity, greater resilience and in which employee rights are enhanced, not eroded.”