In the autumn budget announced today (17 November), chancellor Jeremy Hunt unveiled a raft of measures designed to deliver a “balanced path to stability”, including the largest ever increase to the national living wage and additional support for those who have left the workforce.
In his speech, the chancellor said: “In the face of unprecedented global headwinds, families, pensioners, businesses, teachers, nurses and many others are worried about the future. So today we deliver a plan to tackle the cost of living crisis and rebuild our economy. Our priorities are stability, growth and public services.” He added that the announcement included some “difficult decisions”.
Following the announcement of the new policies, People Management asked HR and employment experts for their analyses of the proposals, what impact they could have, and the questions they believe remain unanswered.
National living wage to increase
The national living wage for workers over 23-years-old will grow by 9.7 per cent to £10.42 an hour from April 2023, the chancellor has said. The move is expected to benefit more than two million of the UK’s lowest-paid workers – a change that has, for the most part, been welcomed, although some suggest self-employed individuals have been forgotten.
Julia Kermode, founder of IWORK, says today’s budget puts many people who are already having trouble making ends meet in a much more “precarious situation”. “Many small businesses owned by self-employed people simply can't afford the minimum wage increase. They often don't pay themselves any sort of wage and, alongside rising energy bills and inflation, this additional staff cost could mean the end for them,” she warns.
Alan Price, CEO at Bright HR, points out that the national living wage rate has never increased by as much as 9.7 per cent, and says the rise is good news for employers, but recognises that “many will still face financial difficulties”.
He says employers should make sure there is more support in place to encourage good financial health, and be aware that their increased operating costs may cause them to worry about rising pay costs: “Employers in such a situation must make sure they adhere to fair procedures and properly interact with their staff.”
According to Alexandra Farmer, head of team at WorkNest, this hike "would undoubtedly compel several employers to reconsider their workforces”.
“Do they require all of their staff members? Can they boost productivity to reduce overall headcount? If so, there might be an increase in layoffs in the following months," she says.
"Unfortunately, avoiding paying employees who are older than 23 the living wage is not an option because all other tariffs will probably increase similarly, even though they don't appear to have been published yet."
Those with low salaries will welcome the increase, but small businesses may find it very challenging to fund this necessary rise on top of other increasing prices, says Ben Willmott, head of public policy at the CIPD. “If the government and smaller enterprises, which are already under pressure to accomplish more with less, are to be able to afford this increase, they must prioritise enhancing corporate efficiency.”
Support for those who left the workforce
Hunt said the Department for Work and Pensions had a critical role in supporting people into work, and pledged to invest £280m into the department to help crack down on benefit fraud, as well as investing a further £11bn in benefits. He continued by committing to undertake a thorough review of adults who have left the workforce and to improve their prospects of landing a job. People receiving universal credit will be advised to routinely meet work coaches.
Rising economic inactivity, particularly among those over 50, is one of the "important concerns in our labour market right now", according to Catherine Foot, director of Phoenix Insights. She says government intervention will be necessary to remove some of the obstacles that labour market leavers encounter when returning to work, adding that employers would play a crucial part in reversing the trend of over-50s being unemployed. "The onus is on employers to change this perception by enabling flexible working, supporting employees with caregiving responsibilities, addressing age bias in hiring and investing in lifelong learning," she says.
Willmott emphasises the significance of taking into account the individual needs for support of those returning to work, in the form of work quality and flexibility. Evidence suggests that working parents, carers and older employees enjoy flexible work arrangements and are more likely to require them. This shows how critical it is for the government to follow through on its earlier promise to support the development of more flexible workplaces, he says.
National insurance and inheritance tax frozen
Further announcements in today’s budget include that the national insurance and inheritance tax thresholds would remain unchanged for an additional two years, until April 2028, while the £150,000 top income tax rate level will be reduced to £125,140.
As well as retaining the pension triple lock and hiking the state pension to £871 to keep up with inflation, Hunt also promised a rise to the pension credit of 10.1 per cent.
Steve Herbert, wellbeing and benefits director at Partners&, says lowering the additional rate of income tax threshold will “clearly” impact high earners, and the freezing of that threshold would “capture more people more quickly over time too”. But, he adds: “It should be highlighted that nothing in today's statement alters the basic issues that now affect employees.”
According to David Brown, CEO of Hi, small firms are seeing greater costs across the board, from office rent to larger than expected pay raises in response to the chancellor's intention to boost taxes. He says the tax increases announced in today's budget would worsen the situation for SMEs in the UK at a time when they are “already struggling to stay afloat amid the stagflation crisis”.
Lee McIntyre-Hamilton, Keystone Law’s employment tax specialist, says that after having weathered immense challenges during the pandemic, employers have been offered no respite in today’s announcements. He adds that employers will face increasing employment costs over the coming years because of the freeze in the national insurance thresholds. “As wages inevitably continue to rise, largely as a result of the effects of inflation, the impact of this freeze on employer costs looks set to become increasingly pronounced,” he warns.
How experts feel about the changes and what was missed
Meanwhile, Neil Carberry, chief executive of the REC, says today’s budget was "grounded in the realities of the country's economic circumstances – that alone is a step up from earlier in the autumn".
But he adds that the budget illustrates “just how much work still has to be done”. “Solutions must be developed in partnership with employers in the private, governmental and non-profit sectors, rather than being imposed. That will be the real test of the plan,” he says.
John Petter, CEO at Zellis, says expectations had been expertly set by pre-briefings over the previous few weeks, and that today’s announcements may not be as bad as some had anticipated. But, he adds, “for families that are struggling to make ends meet but do not qualify for state help or are not explicitly touched by the hike in the national living wage, the chancellor's initiatives continue to make life more difficult”.
Willmott concludes that the government’s growth ambitions won’t be realised unless improving workforce skills and training is placed at the heart of its three growth priorities. He says there needs to be greater emphasis placed on removing the long-standing barriers that have “held back vocational education and training across the workforce and contributed to rising technical skills shortages”, adding that “urgent action” is required to reform the apprenticeship levy, which has “failed on every measure and will continue to undermine investment in skills and economic recovery without significant reform”.