Philip Hammond will outline his plans for the public finances on Monday (29 October) – but while there have been whispers of tax ‘giveaways’ for some, the impact of Brexit and a desire to end the broader austerity programme have led many commentators to predict the chancellor will announce a number of measures that may directly impact employers.
People Management spoke to experts about what’s likely, and what they’d like to see, in Monday’s big unveiling.
There has been widespread speculation that the Treasury may raise revenue by scrapping or dramatically altering the employment allowance, a scheme introduced to stimulate job creation by allowing organisations to offset the first £3,000 of an employee’s annual salary against their employer’s national insurance bill.
Hammond’s predecessor, George Osborne, introduced the allowance in 2014, initially at an annual rate of £2,000. It increased to £3,000 in 2016, and has enjoyed a huge take-up.
However, it is almost impossible to attribute new job creation directly to the allowance, and some critics view it as an unnecessary subsidy for larger, highly profitable employers. The allowance costs the Treasury around £2bn a year and rumours last week suggested it could face the chopping block.
Others have argued for it to be targeted more precisely at SMEs. Mike Cherry, national chairman of the Federation of Small Businesses, said the allowance was a “vital incentive” for smaller firms.
“There is a strong case for reforming the allowance – uprating it, and directing it towards the small businesses where it has a meaningful impact,” he said. “[Receiving] £3,000 off your national insurance bill makes a massive difference if you’re a micro business trying to expand.”
Self-employment and IR35
A consultation into the potential extension of IR35 rules into the private sector closed in August, and reports have suggested the Budget may see the rubber-stamping of a new regime bringing private firms into line with the public sector.
The consultation looked at how to align compliance with the existing off-payroll working regulations, which came into effect for the public sector in April 2017. The regulations mean contractors who work through a personal service company are taxed at the same level as employees engaged in the same role.
It has been rumoured any new rules could be brought into effect as early as April 2019, which would leave businesses a huge task to reclassify their contingent workforces and deal with any fallout affecting their operating models.
Hammond has made it known he sees IR35 as a tool to equalise the tax treatment of employed and self-employed workers and to rectify what the Treasury regards as a shortfall in national insurance contributions.
Bodies representing the self-employed have been alarmed by the proposals. IPSE’s director of policy, Simon McVicker, said Hammond’s plans to extend IR35 reforms to the private sector would be “catastrophic”.
“The message from companies and industry groups has been crystal clear: businesses will not be ready to implement these complex changes by April 2019,” McVicker said. “We urge the government to see sense, consider the weight of evidence against the reforms, and follow through with policies which value – and don’t victimise – the self-employed.”
Pensions tax relief
It has long been suggested that higher earners will be affected by cuts to pension tax relief, which Hammond has previously described as “eye-wateringly expensive”. The annual net cost of the measure is about £25bn.
The Treasury said there was “no clear consensus” for either fundamental or incremental changes to the relief, under which higher rate taxpayers can claim a higher level of tax relief (40 or 45 per cent versus 20 per cent for basic rate taxpayers) once they hit their annual lifetime allowance on savings .
Richard Butcher, managing director at pensions consulting specialist PTL, told People Management he hoped Hammond left the measure untouched, arguing this would create a disincentive to save for pensions.
“First, they aren’t actually tax reliefs… instead, they are largely tax deferrals. And second, the constant tinkering with the pension tax system undermines trust in pension saving,” Butcher said.
“Finally, any changes in the system should be predicated on a rational long-term and sustainable strategy for delivering adequate incomes in retirement, as opposed to a short-term revenue need of the Treasury.”
Neil Atkinson, head of proposition at Thomsons Online Benefits, said predictions that Hammond would do anything as “radical” as cut higher-rate pension tax relief were “vastly optimistic”.
“Far more likely is that we’ll see a gradual nibbling away of the lifetime and taper annual allowances,” Atkinson said. “While this won’t discourage your average Joe saving into their pension, neither will it address the real issue – simply not enough people are putting money away.”
He suggested the government push through the introduction of a Pensions Dashboard for savers, to combat savings inertia.
Learning and earning
Ben Willmott, the CIPD’s head of public policy, said he was keen to see alterations to the apprenticeship levy in the Budget – principally aimed at making more flexible – as well as measures to stimulate lifelong learning.
“The CIPD put in a Budget submission calling for £13m a year to improve the quality of people management support available to small firms through Local Enterprise Partnerships,” Willmott said. “We believe government needs to do much more to address the UK’s productivity challenge and to improve job quality.”
He added he thought there was a “real need to ensure” universal credit is properly funded and ensure it “pays to be in work”. This could be achieved, he said, through increased funding to support the effective rollout of the new benefits regime.