At last, a light at the end of a very long tunnel of tax and bureaucracy. For years most of us have scratched our heads, nonplussed at the nonsense of income tax and national insurance being touted as distinct and separate taxes. Finally George Osborne said what the rest of us have been thinking: He announced in his second Budget today that National Insurance contributions (NICs) are simply just another tax on earnings and something of an anomaly. As a profession that continually looks at business operating models and advises on efficiency, effectiveness and productivity, one hopes that Osborne had expert advice from his HR function that collecting Income Tax and NICs is, simply put, duplication of effort gone mad! They spend a massive £759m operating both of these taxes. So the merger of income tax and NICs is not before time and it will be interesting to see what the consultation period unearths. Perhaps the saving could go to boost some of the other measures announced, such as paltry £300m earmarked for training and work experience for the young unemployed. Let us hope that the light at the end of the consultation tunnel isn’t an oncoming train!
I don’t think anyone will be too surprised by what they heard in today’s budget. One of the most significant points from my perspective is the OBRs suggestion that unemployment will peak this year at 8.2%. As a major graduate recruiter we are constantly looking to encourage students to seek paid placements or internships to help increase their employability. It’s great to see the government set aside extra funding to support 50,000 more apprenticeships and 100,000 more experience placements for young unemployed. There’s no doubt, that using this time of austerity to gain valuable work experience will really help the young unemployed as the economy continues on its fragile recovery. The consultation to merge Income Tax and NICs is welcomed with apprehension. The coalition government stated that this is not intended to be a revenue generator, but inevitably there will be some winners and losers. It will take several years to determine how this could work and we’ll follow this consultation with interest. However, the sentiment behind it, from an administration point of view does, make sense. Finally, with the 1 pence per litre fall in fuel duty, I wish I hadn't filled up this morning!
With so much turmoil in the world at present, it was almost comforting that there was nothing unexpected in yesterday’s budget. It appears a neutral, balanced budget but is this enough? Growth forecasts have been lowered indicating that the tough measures put in place in last year’s budget are having limited impact. Hope is now being placed on business and entrepreneurship with corporate tax reductions and formal creation of 21 ‘enterprise zones’. But will this be eaten up by pressures from wage inflation driven by increasing RPI, CPI and inflation tipped to hit 5% this year? In addition, the OBR forecasts unemployment to peak at 8.2% this year. Slow economic growth, high unemployment, rising prices and inflation. Is this not the definition of stagflation? Doesn’t feel so comfortable now.
Business might have been on the lips of the Chancellor but this Budget is really being driven by public sector spending cuts. The majority of these cuts are frontloaded so are impacting now and into 2011/12. As this really means public sector and public sector provider jobs, expect to see a surge in unemployment over the next few months. There is nothing in this budget for those people. With cuts in jobs comes cuts in often essential services and Family Action service users like all poor and disadvantaged people will suffer disproportionately. It remains to be seen whether long term economic benefits will ever outweigh the immediate and substantial human cost. Growth by spending cuts is a harsh pill for people losing their jobs. However it is a recruiters market and there will be some highly qualified public sector workers looking for jobs who will be excellent recruits to other sectors.
The significance of this budget lies not in any single item but in the sum of the measures announced or confirmed. Together they present a challenging set of objectives to HR professionals, with three themes dominating the agenda: Declining net incomes – rising NI contributions, restrictions on childcare vouchers, CPI indexation of personal allowances, loss of child tax credits and the threat to salary sacrifice schemes if income tax and NI regimes harmonise. Public sector pay policy – the second year of the current incomes policy will prove testing, with declining net incomes fuelling increased trade union militancy and yet to be announced increases in employee pension contributions further eroding net pay. Pensions reform – formula increases to state retirement age, abolition of contracting out and for the higher paid, a growing a realisation of what the £1.5m lifetime cap really means. Anyone can set objectives; it is delivering on them which is challenging. The next 12 months will be defining and much depends on the speed and timing of interest rate rises. Combined with the above, they will create irresistible pay pressure and encourage employees to change jobs to achieve earnings growth.
"A government that listens and helps". "There were some who said this year that my job was to help families with the cost of living.....there were others who said that I should back enterprise, support businesses and undertake far-reaching reforms to help the economy grow. It is the central undertaking of this government and core to our strategy that these are not separate tasks – they are one and the same thing." This was the Chancellor setting out the government’s ‘deal’ with the British people and I highlight this particular passage of the speech because it provides useful touch points with aspects of the ‘employment deal’ between employers and employees. The willingness of organisations to embrace ‘both/and’ thinking, to listen more and provide organisational support to employees, while also seeking to create different, better and lower cost products and services, is more likely to foster greater innovation, workforce engagement and sustained productivity improvements – essential ingredients to power growth in the economy. Of course there are many tensions at play and arguments abound in relation to how deep and how fast the planned re-shaping of the British economy should be enacted. But circumstances now compel us to re-imagine ways in which organisations - large, medium and small – can improve their effectiveness.
George Osborne’s Budget does not go far enough in regard to labour supply and skill development. The UK is facing a serious skills shortage with an ageing population and a generation of people who are not equipped with the right skills to succeed in the job market. Kelly Services supports the Government’s efforts to boost the labour supply by make it more attractive for people to work longer and delay retirement, and the implementation of 250,000 apprentice places is a positive step, as is the promise of new technical colleges. However, the Chancellor has today failed to fully address the issue of skills development, which is the key enabler for growth in enterprise. We would like to see a greater focus on scientific, practical and technical skills alongside an appropriate number of young people moving through the education system to higher education. Today’s budget is focused on stability and growth, but the increase in NI will have a huge impact on business across the UK. Even though employers will receive some relief in the form of a larger allowance, this increased cost will reduce opportunity for businesses to invest elsewhere, and lead to less job creation. If the private sector is expected to take up the slack of public sector cuts there needs to be support from government to reduce their NI contributions, not increase them.
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