What the budget meant for the workplace; experts have their say ⁰

As has been the case with recent UK Government Budget announcements, Chancellor Philip Hammond’s first Budget addressed a number of issues related to the workplace, technology and infrastructure. It was the first Budget delivered in the post Brexit era and this clearly informed many of the announcements made. While most of the headlines over the past 24 hours have related to the changes to the tax status of the self-employed as a way of raising around £2 billion, the announcements also covered a broad range of topics related to the workplace, HR, technology and property sectors and have drawn an immediate response from key figures in the sector. These include nearly half a billion pounds relief on the vexed question of business rates reforms, a new focus on technical qualifications and a greater investment in 5G and other forms of digital infrastructure. We’ll be having our own say about the implications of the Budget in the near future, but in the meantime, here’s a rundown of the key announcements and the reaction of industry experts.

In summary

• The rate for Class 4 NICS is to rise for the self-employed from 9 percent to 10 percent in April 2018, and to 11 percent in 2019. That compares to 12 percent currently paid by employees.
• The controversial issue of business rates was addressed with a £435 million cut in business rates. Councils will be given powers to distribute £300m worth of discretionary relief to businesses hardest hit by the rises and no business losing small business rate relief will see their bill increase next year by more than £50 a month.
• £270m is to be invested to put the UK at the forefront of disruptive technologies including robotics, biotech and driverless vehicles.
• £16m is to be invested in the creation of a 5G hub to trial the forthcoming mobile data technology.
• Funds for 1,000 new PhD and fellowship positions in STEM subjects.
• A new qualification for technical education, called T-levels that will see an increase in the number of hours of training for 16-19-year-olds on technical courses by more than 50 percent, to over 900 hours a year on average, including the completion of a high-quality industry work placement during the programme.
• £200m to support local broadband network projects and a commitment to introduce full-fibre connections to public sector buildings.

Responses

Chris Bryce, CEO, IPSE:

Chancellor Philip Hammond’s Spring Budget announced a 2p increase to self-employed NICs. The rise from nine to 11 per cent is deeply unfair and undermines and damages our flexible labour market. The Chancellor began his budget talking about record employment – much of which is driven by record numbers of self-employed, incidentally – before announcing these punitive measures which will have a damaging impact on the self-employed workforce.

The Budget gave help to SMEs with their business rates and supplemented this at the at the expense of the self-employed who will now have to pay more. The NICs increase will affect any sole trader earning over £16,250. These changes aren’t isolated to sole traders, however. Whether you work as a sole trader or through a limited company, you’re likely to face a tax hike. Staggeringly, the Government had promised not to raise NIC’s or National Insurance but have now backtracked on that promise.  The self-employed person takes on a level of risk that the employee does not and this volatility should be accounted for in tax rates.

Ann Casey, partner in the Tax and Incentives group at law firm Taylor Wessing:

The recent growth in the number of self-employed individuals has been attributed to a large extent to the tax system as well as to changing employment practices towards the gig economy. Self-employed individuals cover a wide range of individuals, for example, partners in professional partnerships, who are not necessarily part of the gig economy. The announcement in the Budget of an increase in the rate of NICs paid by self-employed individuals is designed to make the tax system fairer as between the self-employed and the employed. Currently a self-employed individual pays 9 percent NICs on profits between £8,060 and £43,000, an employee pays 12 percent on the same level of salary. A self-employed individual will pay 10 percent from 6 April 2018 and 11 percent from 6 April 2019. The flat rate of Class 2 NICs of £2.80 per week for self-employed individuals will still be abolished from 6 April 2018 as previously announced.

Although this increase in the rate of NICs for self-employed individuals does level the playing ground between the self-employed and the employed, it does not address the “elephant in the room” that an employer has to pay employer NICs for an employee and there is no equivalent for self-employed individuals.  It will be interesting to see whether there are proposals in the Matthew Taylor review on employment as to how to deal with the thorny issue of employer NICs and whether it could be replaced by a levy paid by self-employed and employed individuals.

Ian Brinkley, Acting Chief Economist of the CIPD:

The Government’s productivity plan appears to be having no measurable impact on the economy’s future productivity performance, according to the OBR forecasts. The OBR assumption about future productivity growth between now and 2021 is little different to that published in November 2016 and worse than that published a year ago, in March 2016.  If the economy is to survive the choppy waters presented by Brexit, then it is crucial that the Government does more to address the productivity problem with a greater focus on investment in skills and business support for SMEs, for example, as it is apparent that their current plan is not working.

Above all we need a convincing skills strategy that addresses the skill shortfalls across the workforce as a whole. The Chancellor’s announcements regarding investment in skills and lifelong learning is a step in the right direction but it’s vital that workplace skills continue to be front of mind for the Government. We’ve hit record employment, now the Chancellor’s challenge is to make sure that work is more effective, and our economy more productive.

The changes to national insurance highlight the challenges associated with having a population that is working in increasingly diverse ways. With more people likely to become self-employed or involved in other forms of atypical employment in the future, the tax issues highlighted by the Chancellor will only become more problematic. The Taylor Review into the gig economy provides a crucial opportunity to re-set the framework within which the labour market will operate in the future, and we look forward to working with Matthew Taylor’s team to ensure that workers are given more clarity about their working rights.

Lizzie Crowley, CIPD Skills Adviser:

It’s great to see recognition that tackling the UK’s skills challenges is a top priority. With a significant slowdown in workers coming from the EU, upskilling the UK’s existing workforce and the next generation is more vital than ever. Technical education has been a longstanding weakness in the UK skills system. Additional investment to help to equip the next generation of workers with technical skills is therefore very welcome as we head towards post-Brexit Britain.

However, the majority of the workforce of 2030 is already in work, and whilst the £40m investment in lifelong learning is welcome, we question the balance of government spending priorities given the focus needed on helping people already in work. We look forward to hearing more about how the Government is going to improve lifelong learning, to ensure employees are able to perform to their full potential at work, keep their skills up-to-date and feel challenged and motivated in their role.

Lord Adonis Chair of the National Infrastructure Commission:

The government’s positive response to the commission’s recommendations on mobile connectivity and 5G is welcome. The commission’s central finding was that mobile connectivity has become a necessity. It is great to see that the government is ready to take an active role in ensuring services are available wherever we live, work and travel, and that our roads, railways and city centres are 5G ready. But the strategy around digital connectivity needs to be delivered coherently. A clear roadmap is required so that the proposed spending on fibre and connectivity pilots reflects the Commission’s conclusions and delivers tangible benefits to consumers and businesses. The commission looks forward to the government reporting back on before the end of 2017, and to DCMS making headway in establishing mobile connectivity fit for the future.

Miles Gibson, CBRE:

As we expected, the pressure to ‘do something’ on business rates proved overwhelming and we got last-minute adjustments worth £435m over the next 3 years, with £230m of that this year. Those changes blunt the impact of new rates bills, but not by much: the industry is likely to be deeply disappointed. And there was no firm commitment to doing anything soon about moving to 3-year revaluations. When you compare them with the £29.6bn that business rates will actually raise in 2017-18, it’s small beer.

Otherwise, the Budget was pretty dull. There’s been quite a lot of action in previous Budgets on property taxes, but the business rates move was purely reactive. Behind the apparent disinterest in property exhibited in the Budget, something much more profound is going on. Press reports claim that the Chancellor has been convinced about the ‘unfairness’ exhibited by the tax system towards property-intensive businesses, with the benefit going to multinational e-commerce businesses.

But attacking business rates is really just shooting the pianist (VAT is as much the issue, as the Budget document recognises). It follows as night follows day that the more you use expensive property, the more you are going to get stung by a tax based on the value of property. Business rates thus encourage the efficient use of property. But the totally avoidable cliff edges in the transition from one set of values to the other felt unfair to many; and the Chancellor elected to do very little about that, mostly passing the buck to local councils

Kevin Farnsworth, Reader in International Social Policy, University of York

The biggest surprise of this budget is that the most significant factor that affected it wasn’t mentioned at all. Not only did the chancellor not mention Brexit, it is not immediately obvious how any of his announcements connect directly to it either.

I would have expected a boost to regional development or support for new businesses along the lines being called for by the car industry. Usually, an unexpected boost to the finances – borrowing is set to be £26 billion lower than previously predicted by the end of this parliament as a result of stronger than expected growth – would provide some scope for new policies. But it gave the chancellor little wriggle room today. This is in part because he wants to reduce borrowing in future. But it is probably more to do with the fact that he wants to give himself more flexibility as the government prepares for Brexit.

Geraint Johnes, Professor of Economics, Lancaster University

Productivity is very much at the heart of the budget, with specific projects being allocated funding from the £23 billion fund previously announced in the 2016 Autumn Statement. But the main announcements made today concern the country’s education and skills infrastructure. New funding will be made available to support the creation of 110 free schools. These will, controversially, include new selective schools and specialist maths schools. While it is widely recognised that students attending selective schools can benefit from the experience, average performance across all students in areas served by such schools is not enhanced.

The chancellor also announced a long overdue and welcome tidying up of vocational and technical qualifications, replacing more than 13,000 qualifications by some 15 new T levels. Here the devil will be in the detail – we know that the job market has been polarising and that routine jobs will face challenge from continued advances in automation. To prevent a situation where we train people to do jobs that robots will soon do, technical education will need to emphasise adaptability, a high level of creativity, and the ability to learn how to learn. Finally, a relatively small investment – but an important one – addresses the issue of lifelong learning. Hammond has announced £40m to be spent on pilot projects in this area.

Rosi Prescott, CEO of Central YMCA:

As an organisation that has helped steer many thousands of young people through an apprenticeship, the announcement by the Chancellor today to truly establish a parity of esteem between academic and technical education is warmly welcomed by Central YMCA. It’s no secret apprenticeships can and do act a vehicle of social mobility for students from disadvantaged backgrounds so the announcement to allow technical students access to maintenance loans is also greatly welcomed. It’s high time this parity of esteem was achieved and we look forward to seeing the Government plans take shape, in the face of a reforming apprenticeship programme, in the coming months and years.

Anna Purchas, partner and head of learning at KPMG:

Businesses look for certain behaviours and capabilities when recruiting, such as curiosity and agility, as well as academic achievements. T-levels, if designed in partnership with business, have the potential to provide the skills organisations need and may also enable employers to access a previously untapped pool of talent, if the new qualifications appeal to those put off by the traditional academic route. Offering placements as part of this training will prepare young people for the world of work and give them the chance to learn new skills, while testing out a future career.  However, the quality of these placements need to be monitored in order to ensure they offer a real chance to learn and experience the business, not just make the tea.

Gary Simmons, Partner and Client Director at Mercer:

With current demographic trends suggesting that the UK could be sailing into a workforce crisis, there was not enough in the Budget to prepare for the needed investment in skills, retraining and other ways of increasing participation from those that don’t find the workforce as accessible as it could be. The one exception was the welcome extension of free Childcare provisions for working families with 3 and 4 year olds.

There was, however, more clarity given to some of the provisions set out in the Autumn Statement for productivity and infrastructure to be earmarked to invest in STEM areas, fibre networks and 5G, all of which will be helpful in increasing automation, available work in rural economies and home-based working. Much focus was given to the new T–Levels and technical training for the young in general, but the impact on the workforce of these policy changes will be slow. There was no obvious help in the retraining of older workers in these necessary skills and for increasing participation – which the OBR admits is close to its underlying potential rate. There was a somewhat paltry sounding figure of £5m to invest in investigate the best way to retrain people with ‘returnships’ for those who have been out of the workforce for some period of time. And even here, the Chancellor’s language spoke of preparing the economy for today’s younger workers for later in the careers – rather than any short or medium term needs for those currently in the workforce. So, investment and competition between organisations for the talent they need seems to be seen as the default position of driving further investment in skills for the economy, rather than holistic government intervention.

Given the economic need to attract workers from diverse backgrounds and circumstances, the attractions of self-employment or having service companies are a large part of providing labour market flexibility. Today’s moves to balance up the taxation base between employment and self-employment can be justified economically from the perspective of the better state benefits now available to self-employed workers.  However, it is to be hoped that Class 4 NICs do not become a go-to tax for future Chancellors looking to balance the books regardless of the damage this may do to the UK’s dynamic and flexible workforce.