Written by Steve Herbert
Without wishing to sound like the late, great, Sinead O�Connor, it�s been 4 years, 2 months, and 23 days since the last General Election.� That vote took place in the run-up to Christmas 2019, and swept the Conservatives to power once again, with a much-improved 80-seat majority.
Yet less than a full term later things appear � and indeed are � very different indeed.
A global pandemic, Brexit, two international conflicts, three Prime Ministers, and five chancellors (not to mention significant infighting within the Tory ranks) leave the current government facing an uphill battle to gain re-election.� And with the latest data showing that the UK slipped into a shallow recession in 2023, things look tough for the government.
So, today�s Budget announcement by the current Chancellor, Jeremy Hunt, may well provide the last throw of the fiscal dice to influence the electorate before the next national vote is eventually called.� Yet the headroom for tax giveaways is rather limited, not least because recent changes (most notably a reduction in National Insurance from 6th January this year) were already offered in the autumn statement just over three months ago.
Yet there were still several important announcements around employment, wellbeing, and reward.
Taxation changes
As expected � and indeed heavily trailed � Hunt announced a further reduction to employee National Insurance contributions from 6th April this year when the rate will drop by another 2%. �This is the third reduction (from the peak level introduced for the short-lived Health and Social Care levy) in just two years � with middle-band employees now paying just 8% National Insurance on their middle-band earnings, a rate almost 40% lower than it was in April 2022.
NI rates this decade:
Date implemented���� Employee rate���������� Employee rate���������� Employer rate
����������������������������������� (middle band) (upper band)
06/04/2020����������������� 12.00%����������������������� 02.00%����������������������������������� 13.80%
06/04/2021����������������� 12.00%����������������������� 02.00%����������������������������������� 13.80%
06/04/2022����������������� 13.25%����������������������� 03.25%����������������������������������� 15.05%
06/11/2022����������������� 12.00%����������������������� 02.00%����������������������������������� 13.80%
06/04/2023����������������� 12.00%����������������������� 02.00%����������������������������������� 13.80%
06/01/2024����������������� 10.00%����������������������� 02.00%����������������������������������� 13.80%
06/04/2024����������������� 08.00%���������������������� 02.00%����������������������������������� 13.80%
This is sure to be welcomed by millions of workers, although many of the savings are likely to be offset by the continuing freeze in tax thresholds which is gradually forcing more and more workers into a higher tax band, or into paying tax for the first time.
From the above table you will note that the reduction in NI rates has not been extended to those in the upper salary band, or (importantly) to the employer’s rate of National Insurance, which is still a chunky 13.80%.� This suggests that many hard-pressed employers will be picking up the tab for a significant pay rise (nearly 10%) to the National Living Wage in April, alongside a still high National Insurance taxation rate on those earnings too.� This combination might present yet another headwind for the UK economy.
One common mechanism to ease the pain of such taxation is the use of salary sacrifice schemes.� Yet these schemes will now appear less attractive to employees (as they are now saving significantly less National Insurance using this mechanism than previously).� It follows that employers may need to revisit and recommunicate their salary sacrifice offerings to allow for these two recent changes.
Support for working parents
As I reported in my coverage of the spring Budget last year, the government has announced significant improvements to state support around childcare to encourage more parents to return to the workplace.� That said, the timetable to deliver such support extends to 2026, and there have been multiple news stories that the childcare industry is not able to implement much of the support owing to cost and staffing concerns.
Yet there was still room for one new � and doubtless very welcome � additional change in this area.� For many years employees earning more than �50,000 per year have been either excluded from claiming Child Benefit or required to pay some or all the benefit back in a tax charge at the end of the year.
Yet the system is seen as unfair.� A couple earning (say) �49,000 each would be able to claim the full benefit, whereas a couple with just one income of �60,000 would not.� Accordingly, the Chancellor has announced the intention to move to a household (rather than individual parent) income threshold by 2026, and in the meantime has increased the upper threshold to �60,000 in the next tax year, with a higher taper up to �80,000.� This is estimated to benefit nearly half a million families (at an average rate of �1,260 next tax year), and employers should therefore encourage employees to look at this benefit once again.
Occupational health support
Another feature of last year�s Budget was announcements around encouraging and supporting access to Occupational Health.� Not too much progress appears to have been made in the year since, but The Occupational Health Taskforce was announced last month, and will be Chaired by health expert Dame Carol Black.
Pension changes
Finally, the Chancellor also expanded on the promises made in the Autumn Statement around pension reform.� There have been valid concerns that the reforms will not result in more investment in UK assets, and this is something that Hunt returned to today.
He said, �We�ll give new powers to The Pensions Regulator and Financial Conduct Authority to ensure better value from defined contribution schemes by judging performance on overall returns not costs. We�ll make sure there are vehicles to make it easier for pension funds to invest in UK growth opportunities.�
Whilst this does represent a meaningful change for pension providers, the practical impacts for most small and medium-sized businesses will be nominal, as their pension provider or fund manager will ensure that compliance with any new requirements is made as part of their offering.
So, some interesting changes, but aside from the National Insurance/ Salary Sacrifice issue, not too much extra in this Budget to scare reward professionals.� The bigger challenge will come with the first Budget speech after the General Election, when the next Chancellor (whoever it might be) is likely to take some tough decisions � particularly around pensions tax relief.� And those changes could well be announced even before the end of 2024 depending on the date of the General Election.
Watch this space.
Please follow this link for the full Budget documents.
Steve Herbert, HR Commentator, Reward Expert, and Communications Consultant
