Employment experts react to Rachel Reeves's Budget

Author: Adam McCulloch, Personnel Today

The Budget, the first in the UK by a female chancellor, was designed to fill a public spending black hole, boost public services, secure financial compensation for victims of scandals, and maintain defence spending. Labour has sought to stand by its manifesto commitments and not apply extra taxes to 'working people'. However, as our panel of experts says, businesses will see considerable added costs.

'Employment Allowance will help small businesses'

Mathew Akrigg, policy and research officer, Chartered Institute of Payroll Professionals (CIPP)

"Positive movements in national living wage, parental rights, statutory sick pay and so on are fantastic news stories for the worker; however, they come at a huge cost to employers. Employers' national insurance contributions will be increasing by 1.2 percentage points and the threshold at which employer's pay NI will fall from £9,100 to £5,000, increasing the overall cost of employment to employers throughout the UK. This may lead to suppressed wage growth and reduced employment opportunities.

"It is therefore positive for small businesses that the Employment Allowance will see an increase from £5,000 to £10,500. Small businesses make up the majority of employers in the UK, therefore it is key to the Government plan for growth to support such companies.

"The current freeze of [tax] thresholds is not extended beyond 2028. This will result in workers keeping more of their wages as the thresholds increase in line with inflation in 2028-29. The freezing of these thresholds has represented a stealth tax for the years it has been in force, taxing workers more as their wages rise."

The Industrial Strategy must deliver

Neil Carberry, chief executive, Recruitment and Employment Confederation (REC)

"Reassuring businesses must now be about ensuring the additional contribution they are making will flow back to them in the form of better fundamentals in our economy: ease of doing business, shorter waiting lists, easier planning, new infrastructure and better access to low-cost investment capital. The Industrial Strategy matters to this - but it must deliver. If business is being asked to do its bit - government must also step up.

"We were pleased to see the labour market feature in the chancellor's comments. Additional funding to support labour market inclusion and address inactivity is welcome - but government programmes are always more effective when they work hand-in-hand with the private sector.

"The Government's determination to run towards tough decisions should have included reforming NHS people management. We must do away with the existing dysfunction in how temporary staff - vital to service delivery - are procured. The current system works against itself by incentivising last-minute and short-term solutions.

"The chancellor is right to tackle issues around umbrella company compliance - but has chosen the wrong tool. Employment businesses are already some of the more heavily regulated businesses in the country, and responsibility for supply chain compliance will stretch them. Yet umbrella companies themselves are not regulated. This is long overdue and would deliver a much more level playing field."

'Employment could be suppressed'

Ben Harrison, director, Work Foundation at Lancaster University

"The chancellor attempted to walk a fiscal and political tightrope, committing to raise an extra £40 billion in taxes while prioritising a 1.5% uplift in investment in public services and more funding for infrastructure and capital projects.

"To fund these increases, the chancellor confirmed that the threshold at which businesses start to pay national insurance contributions will be lowered, which stands to raise an extra £25bn. The OBR suggests this may suppress the overall rate of employment by 50,000 employees (0.2%) by 2029-30, as organisations find it more expensive to employ people. This may make achieving the Government's ambition to reach an 80% employment rate even harder to realise.

"While the chancellor honoured Labour's election commitment not to raise taxes on working people, continuing the freeze on tax thresholds for now will bring hundreds of thousands of people into higher tax bands during the majority of this Parliament. The announcement this freeze will end in 2028-29 is welcome, but will be particularly challenging for lower earners who go on to face a higher tax bill.

"It is encouraging to hear the chancellor commit to an integrated approach across government departments to tackle economic inactivity. Funding for 16 locally led trailblazer projects is positive, and may spark innovation to support more people into work. But to be effective, it is highly likely that more investment over the announced £240 million will be needed in the future.

"Ultimately we won't know how effective wider plans to get more people into work will be until we see the detail of the Government's Get Britain Working White Paper in November."

From sickness to prevention

David Williams, head of group risk, Towergate Employee Benefits

"Although the headlines for the autumn Budget will understandably follow the Government's plans around NI and other funding mechanisms for public spending, there was a quiet but welcome insight into their aims around reducing sickness absence within the working age population.

"Firstly, we will see a Get Britain Working white paper which will aim to explore root causes of inactivity and poor health (among other things).

"Secondly, there were green shoots regarding NHS funding where the chancellor cited the aim of going 'from sickness to prevention'. The employee benefits industry focuses heavily on prevention and rehabilitation for workplace sickness so this phrase is music to our ears.

"However, the detail is still light and any investment will take time to improve NHS capacity and waiting lists. So it's crucial that, in the meantime, employers take advantage of private sector support available through their various employee benefits. The frustrating part though is that the increase to employer National Insurance contributions is likely to negatively impact company budgets at exactly the same time that we're trying to encourage them to spend more on their employees' health and wellbeing."

Freelancers can feel positive

Seb Maley, Qdos CEO

"Employers - especially small businesses - may feel aggrieved at an increase to employers'  national insurance. But freelancers and contractors can be more positive about this tax change. The cost of employing people will increase, which could lead to a surge in demand for freelancers and contractors engaged off-payroll. Given how many businesses shifted contract workers on the payroll in response to IR35 reform, an employers' NI hike may prove to be the push they needed to rethink this stance. It could become a catalyst for contract opportunities.

"This brings IR35 and the off-payroll rules into sharp focus. Businesses engaging contractors and the wider self-employed must prioritise their compliance and ensure these workers are engaged under the correct employment status. Falling foul of these rules can result in staggering tax liabilities, which could wipe out potential savings made on employers' NI.

"The move to clamp down on non-compliant umbrella companies that lure in unsuspecting workers - only to leave them with devastating tax bills - has been a big discussion point for some time. From 2026, making recruiters and businesses responsible for ensuring the correct PAYE deductions is designed to help protect the 700,000 or so people working via these intermediaries. In some ways, the Government is asking the wider supply chain to police the compliance of umbrella companies and carry the can from a tax perspective if tax avoidance has taken place."

'Thin gruel' for further education

Jo Grady, general secretary, University and College Union (UCU)

"Today's Budget is thin gruel for those working in universities. Employer national insurance rises will hit the sector hard when higher education is already on its knees. Universities are crying out for increased public funding to secure their future as Britain's last world-leading sector, yet the Chancellor failed to deliver.

"Increases to the apprentice and national minimum wage are welcome; this will not only improve the lives of the lowest paid, but raise the bar for all workers and help grow the economy. The £300m in additional funding for further education must be used to match the 5.5% pay rise that schoolteachers received and help close the £9k pay gap. If pay doesn't rise, colleges will continue to haemorrhage staff and there will be no one left to train the workforce of tomorrow."

Business relief was a relief

Nicholas Hyett, investment manager at Wealth Club

"Business relief is crucial to the long-term future of many small family-owned businesses up and down the country. The good news is that the reforms in this budget are less draconian than feared, with full relief capped at a still fairly generous £1 million and inheritance tax falling to 20% thereafter.

"The decision not to add a hard cap to business relief avoids the worst-case scenario for those invested in specialist products that aim to qualify for business relief by investing in things like solar farms, property development lending and care homes. These are illiquid assets, and complete tax relief withdrawal risked investors being locked in for a long time and/or painful markdowns in value.

"Nonetheless for larger businesses up and down the country, this reform will be a source of considerable concern."