Having only been chancellor for a matter of days, Kwasi Kwarteng has certainly had a busy introduction to the role, yet his so-called ‘mini’ Budget, announced this morning (23 September) appeared to be anything but mini, instead representing one of the most significant shake-ups to the UK’s fiscal landscape in recent years and covering, among other areas, a raft of changes to tax legislation, National Insurance and benefits as well as energy and stamp duty.
Here’s a snapshot of what will affect employers…
Wave goodbye to IR35 reforms
Kwarteng confirmed that the changes to off-payroll working rules, which place the onus for calculating tax on employers rather than contractors, and were brought in in 2017 in the public sector and 2021 in the private sector, will be repealed from April 2023, when original rules, where contractors were responsible for assessing their own tax obligations, will come back into force.
Tania Bowers, global public policy director at the Association of Professional Staffing Companies (APSCo) said it was a “welcome move”. “APSCo has long called for a review of the measures which have dramatically reduced the flexibility of the skilled independent labour market since they were introduced in 2017 and 2021,” she said.
Tax cuts all round
Both income tax and National Insurance (NI) contributions will be cut: the basic rate of income tax is now due to be cut from 20 per cent to 19 per cent from April 2023, instead of in 2024 as proposed by Rishi Sunak earlier this year. The higher rate of 45 per cent, paid on earnings above £150,000 per year, will also be abolished in England, Wales and Northern Ireland, to be replaced by one single higher rate of 40 per cent from April paid on anything earned over £50,270.
Meanwhile, the recent rise in National Insurance contributions, under which employers and employees have paid an extra 1.25p per pound earned since April, will be reversed from 6 November. The new health and social care levy will also not be introduced.
Ben Willmott, head of public policy at the CIPD, said the government’s decision on NI contributions will be a “huge relief” to employers. “We’d urge employers, where they can, to reinvest this back into supporting their people at this difficult time. Some employers have already told us they intend to use the money that would have been spent on this to help their employees during the cost of living crisis,” he said.
“For example, by funding a higher pay rise, a one off cost-of-living bonus, or other financial wellbeing benefits such as an increase in employer pension contributions.”
Universal Credit recipients to seek more work
The government has also threatened to reduce Universal Credit (UC) for those not seeking more work from January next year. Around 120,000 people receiving UC will be asked to take steps to seek more work, or face a reduction in their benefits – an announcement that has already caused a stir among experts.
James Kirkup, director of the Social Market Foundation said ministers were “right that the UK economy needs to get more people working more hours”, but argued that by making UC less generous, its “aiming at the wrong target”.
“A better approach would have been to leave Universal Credit alone and focus on supporting the economically inactive to come back to work…getting economically inactive people back to work should be an economic and social priority. Penalising working welfare claimants should not,” he added.
Neil Carberry, CEO of the Recruitment and Employment Confederation (REC) is equally unconvinced: “Tackling rising economic inactivity is a key part of ensuring the UK can grow. But it is a complex issue. REC members remain unconvinced that benefit sanctions can do the job – there is no point forcing someone to an interview they are unprepared for”, he said.
Support for over-50s returning to work
Moreover, UC claimants over 50 are to be given additional support to help them return to the workforce. It follows reports that older workers are returning to the labour market amid the cost of living crisis.
The government said the changes would give claimants the best possible chance to be financially independent of UC, and added that older workers form a vital part of the UK labour force, bringing a wealth of skills and experience that can help businesses succeed.
The government will continue to consider further options to encourage people to stay in the labour market for longer, to support growth and people seeking to build up savings for their retirement, it said.
Bankers’ bonuses to be unlimited (again)
The cap on bankers’ bonuses, which limits them to twice the banker’s salary and was introduced in the wake of the 2008 financial crisis, will be scrapped.
However, a shift away from fixed salaries to larger bonuses for bankers will come with inevitable legal risks, says Joanna Whymark, senior associate at Fox & Partners. “A lot of bankers have got used to more predictable earnings through increased levels of fixed salary and may resist a system where a much higher percentage of their compensation is based on a variable and usually discretionary bonus.”
“Bank shareholders will not want to see bonuses rise without salaries falling. HR teams are going to find a wholesale shift to bonuses a legal and practical challenge – you can’t unilaterally change such an important part of an employment contract without risking employment disputes along the way,” she said.