Budget breakdown: employers' reaction to the chancellor's announcements on tax, unemployment, public sector pay and more
The Budget 2010 contained some measures to help small businesses grow post-recession and touched on how the public sector would attempt to claw back spending, including the relocation of a third of civil servants outside London. But how far did the chancellor really go to alleviate employers' concerns over rising taxes, long-term unemployment and skills shortages? Personnel Today's Budget breakdown reveals all.
On this page:
Taxes
Public spending cuts
Unemployment
Opinion: John Philpott
Public sector pay and pensions
Employment
law
Opinion: Peter Reilly
Green jobs and
investment
Were employers' wish lists ignored?.
What happened?
- Confirmation of the 50% tax rate on earnings over £150,000. This means the UK will have the second most expensive tax regime for senior executives among the G20 countries, behind Italy.
- No move to shelve the national insurance one percentage point rise in 2011 - affecting all those who earn £20,000 or more.
- Confirmed proposals for restricting the higher rate tax relief on pension contributions.
- No increase in capital gains tax rates for companies and individuals.
Business reaction
Employers warned the 50% tax rate will affect the UK's competitiveness. Ben Wilkins, director at top graduate employer PricewaterhouseCoopers (PwC), said: "We're already seeing an impact on companies' decisions about where to locate their top executives."
Gillian Hibberd, former president of the Public Sector People Managers' Association and HR director at Buckinghamshire County Council, said: "The continuing freeze on public sector pay along with tax changes and the new tax regimes on high earners' pensions will create a triple whammy at the top end. Will the public sector be able to attract talent into top jobs?"
Meanwhile, the Chartered Institute of Personnel and Development (CIPD) warned the pensions tax relief changes were "complex, confusing and bureaucratic", and the Recruitment and Employment Confederation said it was "disappointing" that the chancellor did nothing to prevent the National Insurance hike.
Manufacturers' body the EEF welcomed the freeze on business rates.
Public spending cuts
What happened?
- As expected, the chancellor did not outline public spending cuts to reduce the country's £167bn deficit, because the government believes cuts would hamper economic recovery.
- A third of London's civil servants will relocate to rural areas to save money.
- Public sector organisations were urged to make efficiencies, but no details were outlined.
Business reaction
During Personnel Today's live blog, employers were not convinced that the chancellor went far enough. Steve Coventry, head of the EEF, said: "Well... did [Darling] do enough to convince the markets that he has a credible plan to reduce the deficit? Probably not."
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Were employers' wish lists ignored? Personnel Today asked leading employment bodies what they wanted the Budget to reveal prior to the chancellor's announcement today. Our top 10 wish list documented employers' concerns about rising taxes and a call to delay the implementation of new employment laws. Employers wanted greater certainty about public sector cuts, and a clear deficit reduction plan. |
He added there were "bits and pieces" in the Budget for business - namely new measures to ease access to credit, the doubling of investment allowances, and the one-year exemption on business rates. Gillian Hibberd, former PPMA president and HR director at Buckinghamshire County Council, added: "I'm starting to feel a ray of optimism for the public sector. Or do I speak too soon? No further cuts in public spending announced."
Employers were sceptical that relocating civil servants would help save a significant amount of money. Charles Cotton, CIPD reward adviser, said: "Relocating 15,000 civil servants will not deliver efficiency savings if these individuals are allowed to keep their London salaries. Indeed, if this happens it could create more difficulties in public sector pay by distorting regional pay rates."
Unemployment
What happened?
- The chancellor extended the jobs guarantee for young people until March 2012. This will allow 18- to 24-year-olds to be entitled to training or a job if they have been out of work for six months or more.
Business reaction
The CIPD praised the extension of support for the young unemployed, but
called for more support for the over-50s. John Philpott, chief economist, said:
"What older workers need is real help now to avoid the risk of a slide into
long-term unemployment and premature de facto retirement that few can
comfortably afford. We're therefore disappointed that the jobs guarantee has not
been extended to older workers."
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Opinion: John Philpott "Small private sector firms will be grateful for the £2.5 billion package of support announced in the Budget, while Darling's emphasis on boosting investment in high-growth sectors and low-carbon activities is good news for business as a whole. Best of all, since much of this is similar to what opposition parties propose, the measures should survive beyond the general election, enabling business to plan ahead. However, the UK's bosses remain unhappy that the chancellor decided to stick with plans for a 1% hike in employers' national insurance contributions next April - a move that will also raise employment costs in the cash-strapped public sector. As a result, employers may not be totally convinced that this is a Budget for a recovery that works. In our view, the chancellor also painted an excessively optimistic picture of the outlook for jobs." John Philpott, |
Public sector pay and pensions
What happened?
- Confirmation that public sector pay settlements would be held at a maximum of 1% for the two years from 2011.
- No new announcements on public sector pension reform.
Business reaction
The Budget did not go far enough to help protect jobs, according to the CIPD. Charles Cotton, reward adviser said: "Freezing public sector pay for top earners and endeavouring to ensure that public sector pay awards in general are not higher than 1% from 2011 is not enough. We need a freeze in the overall pay bill."
Employment law
What happened?
- Confirmation that the government is considering scrapping the default retirement age (DRA), or raising it. A final decision is expected in the summer.
- A moderate increase in the national minimum wage (NMW) confirmed.
Business reaction
Some employers were expecting more. Chris Ball, chief executive of The Age and Employment Network, said the Budget should have been used to scrap the DRA. Carol Dempsey, reward partner at PwC, urged employers to consider managing different generations in the workplace if the DRA is scrapped. "They will need to reassess the role that a traditional pension scheme plays in the overall employment deal," she said.
Meanwhile, the CBI said the moderate NMW increase recognised that many businesses were struggling.
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Opinion: Peter Reilly "Increasing the national minimum wage (NMW) by 2.2% in October this year (from £5.80 to £5.93) could complicate pay reviews. Employers may find it difficult to increase reward for the lowest-paid workers without also bumping up the pay of those earning just above the NMW. The risk is organisations may find it harder to justify pay restraint further up the pay scale. Equally, public sector organisations faced with pay freezes and a cap on pension contributions may find it difficult to attract the best staff. Normal HR processes on how to recruit and retain talent will have to make way for externally imposed views on efficiency savings. Finally, Darling refused to outline whether Labour intends to scrap or raise the default retirement age (DRA). At least this means it won't become a political football ahead of the election." Peter Reilly, |
Green jobs and investment
What happened?
- The government announced a 'green investment bank' to encourage private sector investment in renewable energy, which could create thousands of jobs.
- The government will maintain support for science, technology, engineering and maths (STEM) subjects with extra funding.
Business reaction
Employers urged the government to take a long-term view on the low carbon economy. Rachel Whittaker, a senior consultant at Mercer, said ministers must promote investment "in a broad range of projects that provide genuine positive environmental and social benefits".
The EEF said employers would welcome investment in STEM subjects.
