March 22, 2016
Strange as it may seem now, there was a Budget last week. We’d planned to produce a report on it once the dust had settled but given that whatever dust had originally been kicked up has now been swept away by a political storm, it’s only now we feel able to offer some perspective a few days out. As ever these days, the budget touched on a number of aspects of the workplace, sometimes hitting the mark and sometimes suggesting politicians don’t yet understand how people work. There was the usual stuff about rates and commercial property but also plenty to digest about the freelance economy, productivity, new technology, flexible working legislation and the current, often faltering attempts to develop wealth and infrastructure as well as the 21st Century creative and digital economy in places other than London. There’s plenty to digest here and plenty of people have already had their say, so a chance to grab a coffee and take all or some of it in.
We’ve long thought that the UK’s legislators struggle to distinguish between a small business and a freelancer, and last week’s budget did little to dispel the idea. For an overview of what the budget meant for small businesses, the excellent website Business Advice published an overview of the changes that will affect them. They include:
Reform to stamp duty for small businesses. The stamp duty rates system for commercial property is being overhauled, with some 90 per cent of small firms seeing tax bills cut or go unchanged as a result. A zero rate band for commercial stamp duty has been introduced for the first time, with changes set to come into force overnight.
Reform to business rates for small businesses. One million small UK businesses are set to benefit from rate relief, Osborne announced in the Budget 2016, as part of a permanent increase in the business rate relief threshold to £15,000. It’s predicted this will save small companies some £6,000 a year, with 600,000 soon to pay rates at all.
Removal of Class 2 NI contributions by 2018. The Budget contained another surprise, in the form of Class 2 National Insurance (NI) contributions being abolished from April 2018. The Treasury believes this will serve as a benefit to self-employed individuals to the amount of £130 each year.
One organisation not impressed by the budget was the freelance trade association IPSE. It described it as ‘yet another attack on independent professionals’. In a statement it said: “With its latest assault on freelancers who work through “personal service companies”, the Government risks driving a stake through the very heart of the UK’s flexible labour market. While the Chancellor’s commitment to reducing tax avoidance is understandable, wrongfully attacking genuine freelancers demonstrates either some seriously muddled thinking or a wilful and careless misrepresentation of the facts. Something is amiss.
“Freelancers are fundamental to the strength of the UK economy. The flexibility they provide means companies can access highly skilled workers, when they need them. These workers don’t need to be trained up, or relocated, or subjected to time-consuming HR processes. According to the CBI, this flexibility is in fact the only advantage of our economy over those of other developed nations – and the Chancellor’s rule change undermines this entirely.
“Despite the propaganda machine stating otherwise, freelancers contribute almost exactly the same to the Exchequer than their counterparts in employment; if their company was to turnover a total of £87,000 within a single tax year, for example, a typical freelancer would pay £15,120 in corporation tax and £11,281 in taxes on the dividends they take from their company – this is the bit that the media, HMRC and Government don’t want to talk about. The amount freelancers contribute is much, much higher than they want to pretend. And don’t forget that freelancers are unpaid tax collectors as they calculate and collect VAT for the Government, something no employee has to bother with.
“Suggesting that freelancers are using “personal service companies” to dramatically reduce their tax bill simply isn’t true. The true numbers mean that the individual would ultimately pay under £2,000 less in tax as a freelancer than if they were an employee. That £2,000 has to pay for the cost of running the business, and it only goes a very small way to make up for the loss of other benefits of full-time employment which are denied to freelancers, such as sick and holiday pay, workplace or company-provided pensions and training. And let’s not forget the employee protections that contractors forego in order to work flexibly – no notice or redundancy pay and none of the expensive pastoral care that employers are forced to give employees.
“At the moment this announcement applies only to public sector contracts, which is just as well. If these rules were applied in the private sector the effect on the UK economy would be catastrophic. Freelancers are not employees, and attempting to change their employment status will result in confusion for the workers and higher costs for the clients who will no doubt use freelance talent more sparingly. UK PLC will lose out on the benefits contractors’ expertise can bring to projects and instead the huge “consultancies” will provide even more workers, sometimes quite inexperienced, but charged out at vastly more expensive rates – the Big Four’s bottom–lines will be the only winners here, not the Government, not the UK’s freelance sector and certainly not the taxpayer. The Chancellor has effectively given a free handout to the already massive profits of these consultancies and at taxpayers’ expense.
“Freelancers already face enough challenges. The Chancellor would do well to consider using the Budget to boost the UK’s flexible labour market and enhance freelancers’ invaluable contribution to economy – rather than picking on one-man-businesses for extra revenue because they make for easier targets than the global multinationals who appear to get preferential treatment in their tax affairs.”
A round up of all the relevant announcement can be found at Estates Gazette.
According to CoStar, “the headline new policy for the UK commercial property industry will see the tax due on smaller properties lowered while increased for higher value properties. Inevitably, small commercial property investors, and their advisers, are pleased while those who advise and represent larger investors are less so.”
Neil Morgan, Managing Director, Pub & Restaurants at Christie & Co, the specialist business property adviser, told CoStar: “The cut on commercial property stamp duty is a tremendous boost to the sector. Our clients will be saving money from tomorrow. This may give a boost to the leisure and licensed sectors.”
Melanie Leech, chief executive of the British Property Federation, said: “Commercial property investment can often act as the catalyst for regional growth and as the economy has recovered investment has been spreading out from London to the UK’s regions, but will now undoubtedly slow. The real set back in today’s announcement is that development in places like the Northern Powerhouse and Midlands’ Engine will now be held back as a result of this out-of-the-blue raid on commercial property transactions.
“Over a decade ago, the Government of that time decided to decouple the commercial and residential rates of SDLT recognising that the sectors were driven by very different factors and there was no logic in charging the same rates of SDLT on commercial and residential property. We can only hope that today’s announcement isn’t any unravelling of that logic.”
Commenting on changes to business rates, Tim Beattie, head of Rating at JLL, said: “Although it has been a long time coming, it’s very welcome news that 600,000 small businesses will be released from the business rates burden. Linking the rate measurement to CPI as opposed to RPI is something that retailers and businesses have been clamouring for for years and while this is positive news, it seems a little odd that it is being introduced in 2020 when there is no reason why it can’t be implemented now. Business will also warmly welcome the news that the Chancellor aims to introduce more frequent revaluations as it will ensure that liabilities are much more aligned to the prevailing economic conditions going forward.
“It will be interesting to see how the retention of rates by the GLA pans out. In theory it could mean lower rates, but of course cuts in central government funding may mean that this does not translate into hard cash reductions.
“The Chancellor said that he wants to make tax simpler, but the new bureaucratic business rates appeal system known as Check Challenge Appeal runs contrary to this. It was the government’s stated aim in today’s Budget to simplify business taxation and given that the Chancellor estimates that 600,000 businesses will not be paying rates, surely the system is a ripe contender for simplification.”
The Chancellor used the Budget to announce the much expected abolition of the Carbon Reduction Commitment (CRC) energy-efficiency scheme. It will be phased out at the end of the 2018-19 compliance year, with government working with the devolved end on closure details for the reporting element of the scheme. The CRC, a mandatory reporting and pricing scheme designed to incentivise energy efficiency and cut emissions in large energy users in the public and private sectors across the UK, was introduced in 2007. The decision to scrap it follows a consultation on simplification of the business energy tax landscape launched last September. The cost of abolishing the CRC scheme will be met by an increase in the main rates of the Climate Change Levy from April 1, 2019, according to the Budget statement.
There will be an equivalent increase the CCL discount for sectors with Climate Change Agreements to compensate for the increase in CCL main rates. The CCL discount for electricity will increase from 90 per cent to 93 per cent, and the discount for gas will increase from 65 per cent to 78 per cent from 1 April 2019. The Budget statement also said the government would allocate at least £50 million for innovation in energy storage, demand-side response and other smart technologies over the next five years to help new technologies and business models access the market.
Real Business provided a summary of what the Budget meant for regional investment throughout the UK.
Crossrail 2 £80m development funding
Near 100 per cent business rates retention with the Greater London Authority
Support for the expansion of the Royal College of Art’s Battersea Campus
Support for the British Library to develop its Central London site
South East of England
National Infrastructure Commission to make proposals on developing the Cambridge-Milton Keynes-Oxford corridor
£7m to improve rail station facilities at Redhill, Newbury and High Wycombe
South West of England
West of England Devolution agreement, including £900m gainshare pot, devolved transport budget and powers over adult skills
£19m from stamp duty receipts to community-led housing schemes in areas where the impact of holiday homes is most acute
£5m additional development funding to improve resilience on the Dawlish rail line
Increase in grant funding to £14.5m for ultrafast broadband
New Enterprise Zone for Cornwall
£3m to improve rail station facilities
£2m to refurbish the Hall for Cornwall in Truro
Over £250m Midlands Engine Investment Fund for smaller businesses
Midlands Connect put on a statutory footing as well as and development of itspriority roads schemes, including M1 upgrades, and improvements on the A45, A46,M42 and M5
Greater Lincolnshire Devolution Deal, including £450m gainshare pot, devolved transport budget and more joined-up adult skills and criminal justice
New Enterprise Zones for Loughborough and Leicester, and for Brierley Hill, Dudley
£16m grants to aerospace industry including £7m for Rolls-Royce in Derby
£14m for STEAMhouse, a new innovation centre in Birmingham’s Creative Quarter,Digbeth
North of England
Over £150m investment in flood defence schemes in Leeds, Cumbria, Calder Valleyand York
£13m for Hull UK City of Culture 2017
Additional £130m to repair roads and bridges in Cumbria, West Yorkshire, Northumberland, Greater Manchester, Durham and North Yorkshire
£20m per year Northern Powerhouse Schools Strategy to improve schools
£15m for National Institute for Smart Data Innovation, Newcastle
£161m to accelerate transformation of the M62 into a smart motorway, reducing congestion
£75m to fast-track development of major new road schemes including on the M60,A66 and A69 and Trans-Pennine tunnel
£60m to green light HS3 between Leeds and Manchester and for other major city raillinks
£300m further investment in transport including:
Extension of Sheffield City Region Enterprise Zone, subject to agreement
Working with Greater Manchester to devolve powers over criminal justice services
New Life Chances Investment Fund
East of England
Devolution deal with East Anglia, including:
£900m gainshare pot
£175m ring-fenced-housing fund and devolved transport and adult skills budgets
£151m towards building new river crossings at Lowestoft and Ipswich
£50m for a new world-leading centre for food and health research at Norwich
£5m to redevelop St Albans City rail station
A £1bn package of measures to support the oil and gas industry in Scotland
£5m for the City of Dundee’s V&A development
Freezing duty on Scotch whisky
Opening negotiations on a city deal for Edinburgh and South East Scotland
£500m over 20 years for the Cardiff Capital Region City Deal
Halving tolls on the Severn River crossings in 2018, subject to consultation
Opening negotiations towards a Swansea Bay City Region deal
Opening the door to a growth deal for North Wales
Stormont House Agreement funding now delivering infrastructure investment
£4.5m for an air ambulance service in Northern Ireland
Pilot Enterprise Zone near Coleraine offering Enhanced Capital Allowance
According to XpertHR, “the Budget announced that the first consultation on the extension of shared parental leave to grandparents will be launched in May. Shared parental leave was introduced for parents of babies due on or after 5 April 2015, allowing mothers to cut short maternity leave to allow their partner to share their leave. Under the current legislation, the right to shared parental leave is limited to the mother’s partner. Typically, this will be the child’s father, or the mother’s partner if there is an enduring family relationship. Other relatives, including grandparents, are specifically excluded from eligibility for shared parental leave.
“At last year’s Conservative party conference, George Osborne announced plans to extend shared parental leave to grandparents from 2018, allowing mothers to share maternity leave with one nominated working grandparent. He stated that shared grandparental leave would help families to keep childcare costs down, with grandparents playing a central role in caring for their grandchildren.
“In the Budget on 16 March, Osborne affirmed the Government’s commitment. He said the first consultation on the implementation of shared parental leave for grandparents will be published in May. He added that the consultation will put forward “options for streamlining the [shared parental leave] system, including simplifying the eligibility requirements and notification system”.
Stephen Simpson, principal employment law editor at XpertHR, said that, while HR professionals may support the idea in principle of leave for grandparents, they are likely to be concerned by further complexity to shared parental leave rules. “It’s impossible to overstate the difficulty of the current shared parental leave rules, which has surely put employers and employees off this type of leave. HR professionals will be relieved to learn that the consultation will also look at options for cutting down on the convoluted rules.
“Ultimately, this is what may have a longer term impact for employers, particularly because grandparents are already catered for under the right to request flexible working, which is now available to any employee with 26 weeks’ service.”
Building reports that the government has committed to developing and rolling out the next level of BIM standards – BIM level three – in policy documents published as part of the Budget. The Budget document says: “The government will develop the next digital standard for the construction sector – building information modelling 3 – to save owners of built assets billions of pounds a year in unnecessary costs, and maintain the UK’s global leadership in digital construction.” The government launched a mandate for all centrally-procured projects to be delivered using BIM level two four years ago, kickstarting a digital revolution in construction, but there had been concern it would drop its commitment to the policy after the BIM level two mandate comes into force next month on 4 April.
With regard to the UK’s intransigent low productivity and the attempts to correct it in the Budget, the Chancellor came in for stick from a number of sides. Writing in the Public Finance journal, Catherine Colebrook of the IPPR think tank wrote the following:
“At the time of the Autumn Statement last year, the OBR had observed the short-lived burst of productivity growth in the first half of 2015, and made the tentative assessment that we were starting to see the return of our former economic self. Before the financial crisis and ensuing recession, we used to enjoy productivity growth of 2.3% a year. As a result, we had a higher rate of trend (or ‘potential’) economic growth, and could enjoy a higher level of wage growth without risking a rise in inflation, which both made our debts more affordable and gave us a continual improvement in living standards.
“In the years following the recession, our productivity growth has gone missing. This hasn’t just been true for us; the chancellor is right to note that productivity growth has stalled across developed economies since 2008. But what he didn’t mention is that our post-recession productivity growth has been the second lowest in the G7 (above Italy), and that even before the crisis hit, we had for many years been less productive than our competitors.
“The OBR has seen productivity once again stall in the second half of 2015 and concluded that the pickup seen at the start of last year was a false dawn. But it is worse than that: the longer the UK spends in the productivity doldrums, the more likely it becomes that we have been permanently scarred by the 2010 recession – that is, that our productivity growth will never return to its pre-crisis rate. That means permanently lower economic growth, lower real wage growth, and lower profits. This is what the OBR now believes has happened, and is why our growth forecast isn’t just lower this year and next, but across the entire forecast period.
“Osborne responded to this news with some shuffling of the fiscal deck, and through his considerable efforts in this regard, he remains on track to meet his self-imposed rule to generate a surplus in 2019/20 (although the OBR now thinks there is a 45% chance he won’t). But his efforts leave us no closer to understanding – let alone solving – our productivity problem.”
She was joined in her criticism by the CIPD who issued a statement to suggest that the Chancellor’s ‘forgotten workforce’ fuels Britain’s productivity problem.
Mark Beatson, Chief Economist for the CIPD, claimed that “The Chancellor said this was a Budget for the next generation and the result is that today’s workforce has been largely forgotten. The Chancellor is right to want to build a solid future for the next generation but the solution to the UK’s productivity problem lies largely with this generation, some of which still have another 40 or more years of work ahead of them. We simply cannot afford to wait twenty years or more for new skills from future generations to arrive. We need to look at the very real skills challenges that the UK is facing now and how the Government and employers can work together to address them by upgrading the skills of the existing workforce.”
“The Chancellor rightly said that “our nation’s productivity is no more and no less than the combined talents and efforts of the people of these islands” but went on to only talk of infrastructure and largely structural changes to education as the means to solve productivity. The solution to the UK’s current productivity challenges, and the future of work itself, is human. Simply getting people to work more quickly by reducing their commute time might reduce stress levels but we need people to work smarter, not harder or for longer. We must look more closely at how people are performing at work; whether their roles provide challenge and the opportunities to use their initiative and develop new skills.”
BIFM chief executive James Sutton also suggested that Chancellor George Osborne’s latest budget, delivered yesterday, was “somewhat limited” as regards the drive for greater productivity, according to a report in FM World. Sutton told the magazine: “The Chancellor set the scene with the Office for Budget Responsibility (OBR)’s revised growth forecast for the UK economy until 2020, with an expectation of slower growth than previously anticipated and further uncertainty for the global economy. Although he stated that his measures would help create an enterprise culture, we felt that the announcements were somewhat limited. These appeared to focus on financial controls and taxation breaks for business as a way of increasing income, rather than focusing on the full range of productivity drivers.”
“The emphasis on educational improvements was focused on future generations, an important area, but there was little on developing our current workforce and those immediately entering work. It is these people who are able to impact productivity and growth with immediate effect.FM professionals have a significant role to play in enabling productivity in the workplace. We would have liked to have seen a stronger focus on in-work development programmes and schemes. For example, the opportunity to progress and develop skills means employees are often better engaged and more productive. Therefore, we were surprised to have not seen the chancellor build on the foundations of the apprenticeship levy announced in the Autumn Statement.”
The Government doesn’t have a great record at the moment in terms of developing technological infrastructure but what announcements there were in the Budget were welcomed by trade association techUK. Responding to the Budget, Julian David, CEO of techUK, commented:
“The Budget included a number of announcements that will be welcomed by the UK tech sector. The Chancellor’s commitment to adopt all recommendations made by Professor Sir Charles Bean is positive recognition of the importance of the digital industry to the UK economy. Investment of £10m in a new hub for data science will help the public and private sector make better use of data, which has the potential to reduce cost and improve public services.
“5G represents the next stage of mobile development and will play a key role in future connectivity for people and businesses. The UK has the opportunity to be a world leader in the development of 5G, and the tech community will be keen to contribute to the National Infrastructure Commission’s assessment of how this can be achieved. techUK members will be excited to see the government’s ambition for the UK to be at the forefront of the development of autonomous vehicles, alongside support for the sharing economy.”