Apprenticeship and IR35 changes dominate Budget employment measures

Chancellor pledges funding boost for smaller firms to take on apprentices, as income tax thresholds rise

  • Apprenticeship contributions for smaller, non-levy paying organisations halved from 10 per cent to 5 per cent
  • National living wage to increase from £7.83 to £8.21 per hour from April 2019
  • IR35 rollout to private sector in April 2020 – but only for large and medium-sized firms
  • Basic rate tax threshold will rise to £12,500 and higher rate to £50,000 from April 2019 
  • No end to employment allowance, or cuts to pension tax relief for high earners

Philip Hammond repeatedly declared that "austerity was coming to an end" in a "budget for Britain’s future" that contained a number of measures directly affecting employers – including the introduction of private sector IR35 rules – but shied away from cuts to the employment allowance or pensions tax relief. 

Speaking yesterday, the chancellor announced tweaks to the apprenticeship system, providing up to £240m to halve the training contributions made by small and medium-sized employers who are not eligible. 

Under current measures, non-levy payers must stump up 10 per cent of the cost of training apprentices. This is now being halved to five per cent, which alongside measures announced during the Conservative Party Conference forms part of a “£695 million package to support apprenticeships”.

Responding to the announcement, the CEO of the Association of Employers and Learning Providers (AELP), Mark Dawe, described the change as a "major and positive shift". 

“AELP has been pushing hard for this since before the levy was introduced and it should enable providers to work with smaller businesses to start getting back to offering apprenticeships to young people and local communities,” he said.  

Ian Brinkley, acting chief economist at the CIPD, said: “It’s promising to see that the government has halved the contribution for smaller businesses but this is unlikely to greatly boost the number of apprenticeships offered by small firms, many of which lack the capacity to take on apprentices.

"The apprenticeship levy is still far too rigid to work in practice for many employers. We need a more flexible training levy that can help organisations fulfil a number of training and development needs rather than shoe-horning funds and efforts into the apprenticeships model alone. 

“It’s vital that the government continues to review the operation of the levy to ensure it delivers the right results for all businesses and individuals, and that it can meaningfully help address the UK’s productivity challenge. The other big issue on skills is the need to provide small businesses with much more locally provided support on developing people management capability to boost both job quality and firm performance.”

It is not yet clear when the rule change will come into effect.

The national living wage will increase from £7.83 to £8.21 per hour from April 2019, alongside a rise in the national minimum wage that has not yet been confirmed. Hammond additionally announced a consultation to set a new remit for the Low Pay Commission regarding the national minimum wage after 2020, saying he would engage "responsibly" with employers, the TUC and think tanks when making recommendations to the commission. 

In response to consultation with businesses, Hammond also announced the much-publicised rollout of IR35 tax measures to the private sector. Initially anticipated to be extended to the sector in 2019, the measures will now be delayed until April 2020, and will only target large and medium-sized organisations. 

Recruitment and Employment Confederation (REC) chief executive Neil Carberry said employers would welcome the "pro-enterprise" tone of the budget. 

“While we would have liked to see more on reforming the apprenticeship levy to allow the training of temporary workers, delaying changes in taxation for private sector contractors is a big win for business,” he said. 

“This was the main thing the REC wanted from the Budget, as it maintains access to short-notice skills and expertise at a vital time. We’re delighted the chancellor has listened.”

Hammond expressed confidence in a strong Brexit deal, but said the government would not become complacent. He announced an increase in direct lending for exporters and said the government would cut business rates by a third for all small retailers in England with a rateable value of £51,000 or less.

“The promised business rates reduction will allow small employers to consider their financial budgets ahead of the expected increases to the national minimum wage and national living wage in April 2019,” said Alan Price, director of Peninsula Law. 

On the national living wage, Hammond emphasised the government’s commitment to ending low pay, and said he would engage "responsibly" with employers, the TUC and think tanks when making recommendations to the Low Pay Commission. 

The higher rate threshold for income tax will increase to £50,000 from April 2019, in line with a Conservative Party manifesto pledge, with one million fewer people paying the higher rate than in 2015/2016, Hammond said. Tax thresholds will then be increased in line with inflation after 2020. 

However, there was no mention of pensions tax relief for higher rate taxpayers during the speech, and no cuts to the employment allowance, under which businesses can claim a £3,000 rebate per employee against employer national insurance contributions. 

The leader of the opposition, Jeremy Corbyn, blasted the Budget as a series of "half measures and quick fixes".

Read the Budget documents in full on the government's website.