The Chancellor delivered the last Spring Budget on 8 March 2017, and it was one which had the feel of seeking to provide reassurance as the UK begins the formal process of exiting the European Union. Whilst making clear his intention to put economic stability first and make Britain “one of the best places in the world to set up and grow a business”, Philip Hammond reinforced the desire to lay the foundations of a “stronger, fairer better Britain – a country that works for everyone”, delivering four key messages for employers:
1. Tackling differences in treatment between the employed and self-employed (including those working via an intermediary) and a closer look at taxing employee remuneration
Whilst alluding to the on-going work in this area, including the Matthew Taylor review (see here), the Chancellor announced specific measures to tackle what is seen as a lack of fairness between ‘earnings’ from those who are employed and those who are self-employed.
Reducing differential treatment via changes to NICs and the dividend allowance…
The Chancellor confirmed the government’s commitment to a ‘fair and sustainable’ tax system, expressly highlighting the difference in earnings between those who are employed and those who are self-employed (directly or via an intermediary), yet who may in reality be performing the same or similar work. He emphasised that “people doing similar work for similar wages and enjoying similar state benefits [should] pay similar levels of tax“. Measures announced in the Budget to tackle this include:
- Increasing the main rate of Class 4 National Insurance contributions (NICs) from 9% to 10% in April 2018 and to 11% in April 2019 to reduce the gap in rates paid by the self-employed, and to reflect the introduction of the new State Pension to which the self-employed have the same access. Class 2 NICs will still be abolished from April 2018.
- Reducing the dividend allowance from £5,000 to £2,000 from April 2018 to reduce the tax differential between the self-employed and employed, and those working through a company, to raise revenue to invest in public services and to ensure that support for investors is more effectively targeted.
The changes to NICs for self-employed individuals have been widely reported as breaking the Conservative manifesto in 2015, with the Chancellor indicating that they are required in light of the ‘new challenges’ the government faces.
The Budget also confirms that the reforms to off-payroll working in the public sector will come into force on 6 April (essentially requiring a public authority engaging an individual working through an intermediary company to determine whether IR35 rules apply, rather than the individual), despite calls from some commentators and trade associations for a postponement due to a lack of sufficient consultation. There was no indication as to whether these reforms would be introduced into the private sector down the line, but it is not necessarily off the cards.
But should there be “greater parity in parental benefits between the employed and self-employed”?
Alongside Matthew Taylor’s review into employment practices, the Chancellor also announced that the government will be considering this summer whether there is a case for greater parity in parental benefits between the employed and self-employed.
Taxation of benefits in kind, accommodation and employee expenses
The Chancellor also announced that the government will be publishing a call for evidence on the taxation of benefits of kind and employee expenses, and will also be consulting on proposals to bring the tax treatment of employer-provided accommodation and board and lodgings up to date, with an eye on fairness and consistency.
2. Creating a highly skilled workforce with the talent and skills to succeed in global markets
Overcoming the persistent challenge of weak productivity was a central message, with the Chancellor highlighting in particular the need for investment in education and skills to help young people in the UK to succeed in the workplace and support businesses to thrive, particularly as we enter the new post-Brexit world. Indeed, the Budget paper states that ‘lack of skills’ are consistently cited as a ‘major concern’ amongst employers; but that demand for skills is increasing, quoting that over the coming years 42% of businesses expect to have more jobs requiring intermediate skills and 74% expect to demand more higher-level skills.
T-levels and high quality work placements for 16 to 19 year olds
Whilst reinforcing the government’s commitment to 3 million new apprenticeship starts by 2020, supported by the new apprenticeship levy coming into force this April (see here), the Budget set out further proposals to realise the government’s ambition that England’s ‘technical’ education system should match ‘the excellence of its world-leading higher education system’.
Referring to the recommendations of a government-commissioned review led by Lord Sainsbury, the Chancellor confirmed that the ‘confusing’ current technical education system with over 13,000 qualifications, will be replaced with a framework of 15 routes to skilled employment “shaped by industry professionals who are best placed to advise on the knowledge, skills and behaviours required to succeed” and accompanied with a streamlined set of ‘valuable’ qualifications – T levels. These new routes will involve not only a 50% increase in hours of training, but also high quality work placements. The Budget states that “a T-level will leave a young person with a quality qualification focused on a specific occupation(s), experienced in their chosen field and with wider employability skills”.
To meet employer demand for higher level skills, the Chancellor also announced maintenance loans to encourage these students to continue their training further at national colleges or the Institute of Technology.
And a recognition of the need to up-skill ‘at all points’ of life
The Spring Budget, however, did not just focus on the UK’s young workers. Recognising that a modern global economy requires ‘that individuals should have the opportunity to retrain and up skill at all points in their life and to develop skills at the highest level’, the Budget announces:
- ‘life-long learning pilots’ – a commitment to spend up to £40m by 2018-19 to test different approaches to help people retrain and upskill through their working lives; and
- ‘return to work support’ – the government will work with business groups and public sector organisations to identify how best to increase the number of returnships (the opportunity for people who have taken lengthy career breaks a clear route back to employment), supported by £5m of new funding.
Loans will also be made available for part-time degree level and higher doctoral study from 2018/19, again encouraging life-long study and opportunities of higher research for all.
3. Continued supported for ordinary people and ordinary working families
Enabling employees to keep more of what they earn
The Budget restates the government’s commitment to help more people into work and to enable individuals to keep more of what they earn. From April 2017, the personal allowance will rise to £11,500, which will take 1.3 million people out of income tax altogether compared to the beginning of this Parliament.
Childcare support for working families
The Chancellor also announced that from next month, the government will start rolling out its new tax-free childcare scheme for working families with children under 12, providing up to £2,000 a year for each child to help with childcare costs. This will replace the existing employer operated child-care voucher schemes, although such schemes can remain open for existing members.
As previously announced, from September 2017 the government will also double the free childcare provided from 15 to 30 hours a week for working families with 3 and 4 year olds in England.
4. 5G, artificial intelligence and robots… they are coming!
Employers should also keep a watch on wider developments in technology and innovation and which although may seem distant at the moment, have the potential to significantly impact on working practices and how their business operates. The Budget sets out the government’s commitment to invest in cutting-edge technology and innovation, “so Britain continues to be at the forefront of the global technology revolution”, including:
- the potential roll-out of 5G networks;
- investment to “get local transport networks moving”;
- putting the UK at the forefront of global technological progress, including through developing artificial intelligence and robotics; and
- a £300m investment to further develop the UK’s research talent.
So what does this mean for employers?
This final Spring Budget is one that certainly seeks to tackle some of the big issues facing employers in the modern workplace, and which are particularly pertinent as more businesses embrace the digital age in their working practices and we move towards a future outside the European Union.
As well as the commitment to look at parental rights for self-employed individuals later this year, employers should be prepared for further developments on employment status coming out of the Matthew Taylor review, as well as the government’s own select committee inquiry into the “future world of work and the rights of workers“. In the meantime, employers should continue to ensure that they are prepared for the forthcoming apprenticeship levy and keep a careful watch on the government’s plans for delivering the new technical standards, providing their input as appropriate.