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Editor’s Comment: Budget 2005 – High fives from HR?

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Annie Ward

For just short of an hour, Chancellor Gordon Brown delivered his Budget address, wooing, sweetening and balancing the books between keeping business opinion on side and luring ‘vulnerable’ sectors of the electorate; Editor’s Comment looks at what the Budget 2005 means for HR and workers.


At one stage it looked as though John Prescott was actually asleep and he may well have been for this was not a Budget full of ugly surprises or delightful hand-outs but a carefully measured approach designed to pave the way to a return to office.

Brown’s delivery was crisp, carefully thought out and thankfully short; in fact he was just shy of peaking Disraeli’s record for the shortest Budget address in political history of 45 minutes and fortunately a long way off Gladstone’s four and three quarter hour epic dispatch.

Trivia aside there were some interesting ‘carrots’ for workers and in particular for working parents.

Early-years investment
Families are to benefit from further tax breaks, through which payments for children will be increased over the next three years to a maximum of £63 a week for the first child and £111 a week for two children.

His aim he said is to: “Help parents balance work and family life, to give every child the best possible start in life.”

According to his figures the effective point at which a family with two children start paying income tax ‘which was £15,000 in 1997 is now £21,200 and from April 2007 will be over £22,000 – tax credits effectively wiping out income tax liability until earnings of £430 a week.’

Further ‘family goodies’ include:

  • 1000 sure start children’s centres for the under fives by next year rising to 3500 by 2010

  • from 2007, free nursery education of 15 hours

  • during the coming Parliament, 1 million new childcare places and paid maternity leave rising to one year

  • rise in primary school investment from £1.6 billion this coming year, to £1.8 billion in 2007-08, £2 billion in 2008-09 and 2.3 million in 2009-10

A spokesperson from the Maternity Alliance said of the boon for new parents:

“Increasing Child Tax Credit in line with average earnings, and increasing the income thresholds for and childcare element of Working Tax Credit will target low income families and offer them more financial support. A year’s paid leave will give parents more choice about how to balance work and family responsibilities when their children are under one.

“In the long term, we would however like to see Working Tax Credit entitlement continue during Additional Maternity Leave as this would enable those families hit hardest by a drop in income during the maternity leave period – lone parents and families where the woman is the sole earner, to remain off work for the duration of their maternity leave.”

Secondary and tertiary education
And the reforms don’t just stop at the door of the primary school. Brown offered a goal ‘that children not only start education at three but continue in education or training until 18.’

Two new pilot schemes were announced. The first will offer employers financial incentives to put their young employees on apprenticeships. The negotiated ‘Learning Agreement’ would apply to all 16 and 17 year olds in work with no training. The aim is to test a range of financial incentives to encourage employers and employees to take up apprenticeships.

The second scheme will offer financial support to 16 and 17 year olds who are not in education, training or employment in return for a commitment to progress towards formal learning.

He announced his support for the new Union Learning Academy and a further £65m to Employer Training Pilots this year. The pilots aim to boost the basic literacy and numeracy of employees, and are targeted at SMEs who could otherwise not afford training.

He also set out plans for new centres for vocational qualifications and entrepreneurship in areas of high ethnic minority unemployment.

Sounds good … but
When the Pre-Budget announcement was made back in December we wondered whether Brown had actually forgotten the demographics. The Package he has adopted is certainly appealing for low or middle income families but is Brown actually aware that birth rates are actually down and the workforce is ageing?

Last year, Martin Raymond, Director of the Future Laboratory told HRZone: “It is the 25-35 year old male and female groups who are most likely to put pressure on employers for more time whether it is for leisure or to pursue their own projects. This group of predominantly single and well-educated people are not often targeted by politicians because they don’t traditionally fall into an obvious vote winning category and it is very difficult to pull them into work related policies.”

While professional body the Chartered Institute of Personnel and Development, said the measures were ‘eye-catching’ but warned of tax increases on the horizon:

Chief Economist, Dr Philpott said: “Despite the ‘feel-good’ aspect of these measures the underlying fiscal position – continued strong growth in public spending funded by a combination of higher taxation and borrowing – remains largely unchanged, as does the probability of tax increases sometime in the next Parliament.”

In what leader Michael Howard described as a ‘vote now and pay later’ approach, we might just see a position where workers are only better off if a./ they currently have families and b./ they start saving the coffers now before further increases are introduced.

And bitter pills may yet be served by those businesses trying to juggle impending maternity obligations.

John Cridland, Deputy-Director of bosses’ group the CBI talking of the future right to transfer leave between parents said: “Keeping track of which parent was exercising which right would potentially pose an administrative nightmare and it would be unreasonable to expect firms to police this system. The government must present business with an easy administration system to coordinate shared maternity leave.”

Buoying up the employment record
On achievements to date, Brown was not going to be stopped from playing his trump ‘employment record’ card.

Declaring the UK to be enjoying the highest levels of ‘employment ever’ he used European comparators to illustrate the favourable conditions.

If Britain today ‘had German, French or euro area levels of unemployment we would have two million fewer jobs and if we had America’s higher level of unemployment, there would be one third of a million fewer jobs in Britain.’

According to Brown, the official figures show that since 1997 two million one hundred thousand jobs have been created. While 4000 new businesses are starting up.

With the long-term aim of getting 80% of the eligible population into work, Gordon Brown revealed new measures to get lone parents and those claiming incapacity benefit back into employment.

Lone parents will receive £20-a-week Work Search Premium in eight areas across the country while those single parents successful at getting work will be eligible for a £2,000 return to work bonus, to be introduced next month.

Commenting on sister site Accounting Web’s Any Answers, Amanda Fairclough referred to the proposed ‘golden hello’ as ‘disgusting’.

“There’s plenty of work available, although I accept that some investment is needed to address the skills gap … I fully support the concept of a welfare state for those who can’t work but its limited resources shouldn’t be wasted on those who, for whatever reason, choose not to work.”

While the ‘record-high’ touted by Brown looks rosy on initial inspection, a closer examination reveals that while the numbers in work is indeed high, unemployment has also risen by 22,000 in the three months to January.

While luring incapacity claimants and lone parents back to work seems admirable in itself aren’t we forgetting what Britain actually needs. There is a skills shortage, what is required surely is a trained workforce in the right areas. Without this the enterprise challenge surely remains.

Touching on the skills issue, HR columnist, Quentin Colborn said: “The budget gave little for the HR community to be concerned about. It is interesting to see the emphasis on the growth of skills within the economy with the increased funding to apprenticeships. Money is only one part of the equation; manufacturing based organisations need to make themselves more attractive to the generation of school leavers if we are to grow the wide ranging skill base we need.”

Cutting regulation
Following on from civil service reforms, Brown announced that regulation agencies would be reduced from 35 to nine. Of the move the CIPD’s Philpott said:

“The CIPD is reassured by the Chancellor’s statement of progress toward meeting this objectives for public sector efficiency savings, although further definitive evidence of progress is needed to demonstrate that these savings will eventually be realised and that short-run cost savings are not made at the expense of long-run public sector performance.”

The CIPD particularly applauded the move to transform the Better Regulation Task Force into an independent Better Regulation Commission.

The proposed Commission will provide independent advice to government about new regulatory proposals and vet departmental plans for reducing the burden of red tape.

For HR it is a golden opportunity to voice their opinion via the Commission and only time will tell whether this is an effective channel for HR lobbying.

Company cars
Petrol duty inflation rise will be postponed until 1 September, in recognition the Chancellor said of volatile oil markets.

While Vehicle Excise duty will be frozen for small ‘green’ cars and company car fuel benefit charge also frozen at £14,400 for 2005/06.

John Maslen, Editor of FleetNews said the budget was mixed news for Britain’s 32 million motorists because it left drivers and fleet managers in the same position.

But for companies struggling to cope with oil price increases, the deferral of the inflation increase to fuel and diesel duty will be as the CBI say ‘welcomed.’

So what’s the damage?
Well only time will tell, considerable reforms for working parents may just do the trick in wooing women with valuable skills back into the workplace but at what cost?

Smaller businesses will certainly struggle to manage the financial burden and so in the long term will this help or hinder equality?

The boost for skills is also welcomed but with benefits for all we are in danger of creeping towards a ‘nanny state’ in which businesses and tax payers are left to pick up the costs of high employment.

On the positive side cuts in regulation are certainly to be applauded but with thousands of civil service jobs being axed what will the cost be on performance and how will this tip the balance on that oh-so treasured employment record?

Pundits believe this might be Brown’s last Budget, his ninth in fact, in the next round he will hope to be Prime Minister and if not he will be sitting on the opposition bench so perhaps he won’t mind too much what the outcome will be because it is very likely that he may not have to pick up the pieces.


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Annie Hayes

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