Tomorrow’s spring budget is expected to focus on tackling economic inactivity across the UK, as employment figures continue to sit below pre-pandemic levels.
Instead of being tax focused – as previous budgets have tended to be – chancellor Jeremy Hunt’s ‘back to work’ budget is predicted to announce a raft of measures to encourage people into “jobs that are right for them” – with a particular focus on older workers. However, as People Management previously reported, think tank the Resolution Foundation has warned against focusing policy efforts on trying to entice the most recent ‘Covid cohort’ – early retirees who left employment during the pandemic – back into the labour market, and instead calls for more efforts to support working mothers and disabled talent.
The CIPD is also calling for a “broader strategy to boost labour market participation across all ages”, as its analysis revealed one million young people have been lost from the labour market over the last 30 years. It suggests that reforming the apprenticeship levy and increasing investment in careers advice for schools can help younger people into work, while developing a targeted occupational health service for SMEs and increasing the rate of statutory sick pay could support workers’ health and wellbeing.
Ahead of the budget, Hunt said his aim was to break down various barriers preventing people from moving into work, whether that be “lack of skills, a disability or health condition, or having been out of the jobs market for an extended period of time”.
“We need to plug the skills gaps and give people the qualifications, support and incentives they need to get into work. Through this plan, we can address labour shortages, bring down inflation and put Britain back on a path to growth,” he said.
This might be music to the ears of HR teams across the UK struggling with recruitment and retention and chronic skills gaps, but of course the proof will be in whatever emerges from that red briefcase on Wednesday. So, what might be included in Hunt’s spring budget and what should HR teams be listening out for?
Childcare costs forcing people out of the labour market
For Patrick Brodie, partner and head of the employment, engagement and equality practice at RPC, the proposal to pay childcare support to parents on universal credit upfront instead of in arrears, as is now the case, is welcome. “The government is seeking, by investment and financial support, to remove some of the financial barriers currently preventing parents in low-income households from entering the workforce,” he says.
“With this goal in mind, Hunt's proposal to offer upfront… childcare support to parents receiving universal credit has been well trailed.”
However, critics have called for measures to go further, to support all parents struggling to work because of the rising costs of childcare. Hunt told Sunday with Laura Kuenssberg that while ministers "would like to help everyone… you can't always do everything at once".
Charlotte Sallabank, tax partner at Katten UK, says while there may be some improved tax reliefs for childcare announced in the budget, “there is currently no tax deduction for nannies’ salaries, which is possibly the most blatant example of double taxation and makes childcare financially unattainable for parents whose working hours are too long or too uncertain to allow them to commit to nursery hours, so leading to a fall out from the workforce”.
“Given the current cost of living crisis, the chancellor might announce some limited tax cuts, but they would probably not take immediate effect,” she predicts, instead suggesting the government will wait to announce more substantial tax cuts in the autumn budget to “garner political support” ahead of the general election in 2024.
Impact on recruitment and retention
Ian Nicholas, global managing director at Reed, says despite pressure from some Conservative MPs to drop plans to hike the rate of corporation tax from 19 per cent to 25 per cent, it seems “highly unlikely”. This may hamper investment in skills development and growth, he warns, as businesses are already struggling against ongoing rising costs. “This may then have a knock-on effect for recruitment and even for retaining staff.
“When it comes to the skills gap, the chancellor’s plans to try and drive people investment could potentially help companies that are struggling to recruit. Increasing the lifetime allowance for pensions in an attempt to bring early retirees back into the workforce also has its benefits, but on the other hand comes with high levels of apprehension – especially with many older workers retiring because of sickness or poor health.”
According to Reed’s internal research, many retirees felt “forced to retire” and, despite older workers being open to retraining or reskilling, “they need to be supported by businesses to come back”, he says.
Digital skills investment
If Hunt is eager to “plug skills gaps”, Nicholas suggests that now is the time to invest in upskilling the UK workforce in digital skills.
A previous People Management report revealed the results of a study that suggested employers are struggling to fill digital vacancies as only one in 10 (11 per cent) UK workers possess the necessary skills.
“There also needs to be some incentive for businesses to employ UK workers rather than look for a cheaper option overseas,” Nicholas says.
Fitness to work and IR35: other mooted proposals
The government has also trailed a few measures to tackle the rising numbers of long-term sick back into work, including changes to fitness to work tests for those with medical conditions and, as People Management previously reported, advising medical and healthcare professionals not to sign employees off work.
Many were expecting further announcements on the IR35 off-payroll working rules in tomorrow’s budget, but as Russell Upton, director of key accounts at Parasol points out, HMRC has just recently updated its guidance around a “deemed employer”. As a result of the changes, “the responsibilities of a deemed employer are onerous”, Upton says.
“They are responsible for paying the relevant tax for the deemed employee if they have received a SDS from the client that the contractor is inside IR35,” Upton explains. “They are not allowed to deduct the employer's taxes from the contractor's employment income. So, unless they have made arrangements with the client, they will end up footing the bill themselves.”