On the 15th March, Chancellor of the Exchequer, Jeremy Hunt presented the contents of his first budget in the House of Commons. This year’s spring budget is set against the backdrop of turbulent economies both globally and domestically and the overwhelming focus for the government appears to be the introduction of measures to boost the economy and promote growth.
A silver lining at least, comes in the form of the news that the predicted economic downturn facing the UK economy is less severe than feared, with the country narrowly avoiding recession. The economy is still set to shrink by 0.2% for the year- representing a total loss of spending power of roughly 6%. This “technical recession”- though it still represents a degree of shrinkage, is still far less pronounced than many feared back during the autumn budget of September last year.
If you’d like to discover more about the measures outlined in today’s budget, we've outlined some of the key announcements here. As the dust settles on the unveiling of the budget however, we wanted to take the time to focus on some of the key measures set to be introduced, particularly through the lens of HR and Payroll teams and how shifting legislation may impact their responsibilities over the next 12 months.
Pension cap abolished.
One of the more unexpected announcements from the budget came in the form of the Chancellor announcing he was scrapping the lifetime limit on pension savings. This is the maximum amount of pension savings an individual can build up over their career without having to pay an additional charge. The current £1,073,100 limit was due to last until 2026.
Rumours had been circulating prior to the budget that the cap would be raised to £1.8 million but instead, the Treasury has announced that the charge for the limit will be waived from the 6th April 2023 and abolished altogether from April 2024.
Alongside this, the Chancellor has also announced a 50% increase to the Annual tax allowance- rising from £40,000 to £60,000 from the 6th April 2023.
The motivation for both these changes appears to be driven by a motivation to coax older professionals back into work who may previously have retired earlier or reduced their hours due to hitting their earnings limit- though there is doubt that many of the population earn a significant enough amount to be affected by this change.
How does this impact you?: Pension contributions are one of the major areas of focus for payroll teams and represent an increasingly shifting legislative landscape which must be kept on top of. Although these changes largely impact taxation of pensions, a huge responsibility will fall on payroll and people teams to identify employees impacted and explain the changes to them.
The removal of the limit may very well change the employee’s schedules- it’s certainly the government’s hope that abolishing the cap will coax older, more highly skilled individuals into working for longer before retirement. For organisations, this represents an opportunity to benefit from the experience that these workers provide and offering a unique chance to pivot them into a mentoring role and help transfer that valuable knowledge.
Corporation tax hikes.
In a move which found him somewhat defying wider Tory expectations, the Chancellor announced that he intended to see through the previously proposed increase on corporation tax from 19 percent to 25 percent.
The measures will impact organisations with more than £250,000 in profits from April 2023- this equates to roughly 10% of all UK organisations who would be hit by the increase.
The increase in corporation tax has been sustained by the Chancellor in the hopes of incentivising stronger investment rates such as those enjoyed by other European nations such as France or Germany.
Alongside the announcement of the increase, the Chancellor has also introduced a “full expensing” scheme, which will offer organisations the ability to deduct money invested in IT technology from taxable profits.
How does this impact you?: Predicted impacts of the sustained corporation tax increase are mostly focused around short term hits to recruitment- particularly as those organisations affected adjust to new rates.
Although this doesn’t necessarily mean a wholesale freeze on recruitment is predicted, people teams will certainly be under pressure to focus recruitment efforts and ensure they are getting the right candidate on board the first time, as returning to the recruitment cycle time and time again can soon drive up costs.
More significantly, the ability to waive IT investments as part of taxable profits may go a long way towards incentivising organisations to open the coffers and make critical investments in their digital infrastructure. This could mean that overlooked elements such as digital transformation of HR or payroll systems may suddenly find they are being viewed in a more positive light.
More support for occupational health.
One of the key pillars underpinning Chancellor Hunt’s goals of driving economic growth is “Employment”. In order to support this, the budget has laid out a £406m plan to support those suffering from health issues traditionally keeping people out of work – with a particular focus on mental health, musculoskeletal conditions and cardiovascular disease.
These conditions have been at the forefront for many- particularly in the years since the pandemic-with the increase in remote working meaning that many were without proper support to help prevent existing conditions from becoming exacerbated.
The Chancellor cited occupational health provided by employers as having a key role to play in supporting the workforce and helping ensure that those who are able to work aren’t being left by the wayside.
How does this impact you?: As mentioned previously, the specific conditions highlighted by the Chancellor have definitely been at the forefront for many since the advent of the pandemic and the upswing in remote working. Beyond that, occupational health forms a core pillar of not only inclusion but wider employee wellbeing.
Mental wellbeing in particular is closely linked with employee engagement, meaning that organisations simply can’t afford to let it fall by the wayside as a priority. The continued stigma around mental health in the workplace presents a barrier for leaders and HR professionals when trying to develop appropriate support strategies for employees.
The Chancellor’s announcement has made it clear that the government feels that supporting employees with pre-existing conditions should be a top priority. For people teams however, increased funding simply represents the first step- ideating policy and driving conversation around supporting employees will form an ongoing part of people management strategy.
Childcare reforms for working parents.
One of the most significant announcements for the UK workforce comes in the form of what the Chancellor touts as a “revolution in childcare”, with a proposed reduction in childcare costs and increased availability of facilities for those in need.
The plans will see working parents being made eligible for 30 hours of free childcare for every child over the age of nine months from September 2025, with the measures being introduced in two phases: Firstly, 15 hours of free childcare for working parents of two-year-olds available from April 2024, then 15 hours of free childcare for working parents of children aged nine months to three years from September 2024.
The proposed measures are also set to be supplemented by increased funding for schools and local authorities to increase the numbers of wraparound care being offered and to overcome some of the current challenges presented to working parents through restricted availability of places for school age children.
How does this impact you?: The broader availability and affordability of childcare services carries the potential to fundamentally impact the working set ups of many employees across the country. For many people, the decision to work remotely may very well be dictated by childcare responsibilities, with previous lack of facilities available, working from home may have been the only way for employees to juggle these core needs.
These new measures may free workers both financially and in terms of time, to dictate new requirements for working. Without the need to be tied so heavily to childcare responsibilities, many people may want to add a greater sense of balance to their working week- potentially splitting their time more evenly between home and office space.
For people teams, the responsibility will once again fall on them to communicate these changes to eligible employees and make them aware of the ways in which they can benefit from new legislation. Alongside these changes, it may also be important to host consultations with employees and discuss ways their working setup may need to be altered if possible.
Apprenticeships for over 50s.
Alongside the abolishing of the lifetime allowance on pensions, the Chancellor has also announced the introduction of Returnerships: apprenticeships aimed at the over 50s. This again, is part of the wider growth plan of coaxing skilled, retired or semi-retired individuals back into the workforce.
The Chancellor claims the measures would focus on “flexibility and previous experience to reduce training length” to give people the support they needed to find a “recognisable path” back into work.
The Returnerships will offer skills bootcamps and sector based academies to help refine existing skill sets amongst older employees. These measures will seek to redress the balance of previously lost knowledge and experience amongst certain sectors. Industries such as construction in particular have struggled with an increasingly aging workforce who have been unable to pivot their learned knowledge into something which can be of use to younger employees.
How does this impact you?: In his budget announcement, the Chancellor was clear that the bulk of the responsibility for actioning Returnerships would fall to the individual organisations looking to take advantage of them. Dictating contract type, pay for those on the schemes and how Returnership workers fit in with overarching benefits schemes, will be a core responsibility for people teams moving forward.
These Returnerships will also require a degree of consultation in the introductory phase. A lot of current business strategy and ideation around reward schemes have been designed with the goal of attracting younger candidates in mind. Returnerships present a unique challenge in that organisations will have to consider their existing rewards schemes and how they can pivot to make sure they are sympathetic with the needs and priorities of the over 50s.
Universal Support scheme.
Another indication of the Chancellor’s commitment to increased employment as a key pillar of growth was the announcement of a new universal support scheme, designed with the aim in mind of helping those with disabilities and long term health conditions, back into the workforce.
The plans will introduce a new voluntary employment scheme across England and Wales. Up to £4,000 per person will be invested to support 50,000 people per year to find a “suitable role to cater to their needs” according to the Chancellor.
The scheme will also coincide with the scrapping of disability fit to work tests in what Chancellor Hunt has touted as “the biggest change to our welfare system in a decade.” Under current rules, disability benefits claimants can find their benefits reduced or withdrawn entirely upon their return to the workforce. The Chancellor’s hope is that abolishing these tests and introducing the universal support scheme will help coax people back into the workforce, without the fear of losing key financial support.
How does this impact you?: These measures are a clear drive towards getting employees with disabilities or long term medical conditions back into the workforce. It will therefore need to be a top priority for organisations and their people teams to assess the suitability of their workplace in terms of accessibility and their ability to accommodate the needs of workers with varied and complex medical needs.
Universal changes may need to be implemented in certain areas to ensure organisations are as inclusive as possible. In the long term however, the indication is that a more consultative approach will need to be taken, with people teams engaging with affected employees on an individual basis to help build a working set up which benefits them. This may necessitate a fundamental shakeup of existing processes and demand a wider pivot to more flexible working models.
Hopefully you found this a helpful focused look at some of the major announcements of this year’s spring budget and how they may affect you and your organisation.
At Advanced, we’re more than aware that budget announcements tend to herald huge legislative shifts- ones which more often than not find themselves impacting people teams and their core responsibilities.
We know just how important it is to you that you’re able to hit the ground running with these proposed changes and make sure you get it right the first time. Non compliance of any one of these new rulings could carry the potential of severe financial or legal penalties- not to mention negatively impacting the wellbeing of your people.
A huge part of getting it right will be ensuring you have the accuracy and visibility of workplace data you need to succeed. Advanced People, our range of people management software solutions, including HR, time and attendance and payroll, have all been created with core goals in mind of simplifying your people management processes and giving you access to the information you need to prepare for these changes and create policy and procedure to support your people.
If you’d like to find out more about how Advanced can help you get ready for the changes predicted over the next 12 months, get in touch today.