George Osborne opened his 2013 Budget speech with a focus on the outlook for the UK labour market, and rightly so as the facts make for good reading: 600,000 more jobs expected this year than last, six jobs being created in the private sector for every one lost in the public sector, and more people in work than ever before.
The facts were backed up with some welcome measures to make work pay and stimulate further employment, notably an increase in the personal allowance to £10,000 from 2014, and the announcement of a new Employment Allowance to reduce the National Insurance (NI) burden for employers taking on new employees.
National Insurance and Personal Tax Allowance
The Employment Allowance is something entirely new and is the biggest news story for employers. This is a National Insurance Contributions (NICs) discount and will work by taking the first two thousand pounds off the employer NICs bill of every business in the country from April 2014. The primary beneficiary is the UK’s small business community; by government estimates, 450,000 small businesses will pay no employers NICs at all under this scheme. The £2,000 discount means that a business could take on one new employee on a salary of £22,000 or four at NMW, without having to pay any additional national insurance contributions.
Recruiters should seize on this new measure to talk to clients who have been umming and ahhing over taking on a new member of staff: those clients just got a £2,000 discount courtesy of the government. The additional 1% cut in corporation tax announced for 2015 should also help businesses considering expansion make up their minds.
We understand the benefits of the personal allowance increase already as it has gone up year on year since the coalition took power: a higher threshold means more money in the pockets of low paid workers, and thus more incentive for them to get into work in the first place. The 2014 increase will equate to a £700 tax cut since 2010 for the lowest paid workers, and will take 3 million out of income tax entirely. Coupled with the new £1,200 tax free allowance for childcare that was also announced, and the roll out of Universal Credit, we should see a real widening and diversification of the candidate pool over the next year or two.
Whilst the opening focus on the jobs figures was good, when it came to growth, things got a little less positive for Osborne. The Office of Budget Responsibility has halved their growth forecast – the UK is now looking at 0.6% GDP growth this year compared to the 1.2% forecast in the Autumn Statement just three months ago. Whilst the outlook improves past 2013 (1.8% in 2014 rising to 2.3% in 2015), there was a sense that the Chancellor was looking to deflect attention from the poor growth figures with headline grabbing measures such as the scrapping of the 3p fuel duty rise and a 1p cut in the price of a pint. Keeping the price of petrol down should be good news for Driving recruiters, particularly those who are now operating a few vans and lorries of their own, but cheaper petrol and beer are vote winners, not growth measures.
The Chancellor has, however, managed to find a further £3 billion for additional investment in infrastructure, which should buoy the beleaguered construction sector. Osborne has asked his ministers to find a further 1% in savings from their own departmental budgets, and is redirecting this towards the existing National Infrastructure Investment Plan. Details of exactly how the £3bn will be spent are still to be decided, but we know from the ‘Top 40 priority investments’ listed in the full Budget document that rail and road infrastructure are high up the list – construction and engineering recruiters should being looking to expand into these sectors if they are not supplying them already. Whether the UK has enough skilled workers to meet additional demand in these sectors is another matter entirely – engineering recruiters in particular are already reporting candidate shortages – and so it’s disappointing that no new measures to boost training and apprenticeships were announced.
Construction and Engineering
Whilst there was no new direct investment in house building in the budget, two headline measures to stimulate demand in the housing market were set out under the banner of ‘Help to Buy’. Both measures are designed to get banks and building societies lending to buyers with small deposits but who are able to afford repayments, with one measure focusing exclusively on new builds. Anything that drives demand in the housing market is good news for the construction industry, although construction recruiters will have to wait until January 2014 before these measures kick in.
Shale gas looks like a growth area for higher end engineering and technical recruiters, with Osborne taking a strong pro-stance, introducing a new tax allowance for shale gas fields and calling it “a part of the future” of UK energy production.
Recruiters should also be mindful of the opportunities that may arise from the new funding strategy for Local Enterprise Partnerships. Lord Heseltine’s idea to devolve significant funding for local growth measures directly to LEPs has been embraced by the government, and recruiters with an insight into local labour markets will be well placed to drive investment in their area. We’ll be helping members get more involved with LEPs over the course of 2013/14 through collaboration with the Local Enterprise Partnership National Network, currently chaired by David Frost, who also chaired the REC’s Flexible Work Commission last year.
Turning to the public sector, pay restraint is being extended with the government capping pay increases in 2015-16 at an average of up to 1%. Perhaps the bigger news is the announcement that progression pay will undergo significant reforms throughout the public sector, with the exception of the Armed Forces. These pay reforms are expected to form a big part of the £11.5 billion in additional public sector cuts earmarked for the 2015-16 spending review and could shake things up at a local level for recruiters, particularly in terms of candidate competition. Unfortunately, there was no news on measures to help SMEs gain better access to public sector contracts.
Travel and Subsistence
One of the most significant issues for agencies over the past two years has been the growth in travel and subsistence schemes, many of which are increasingly pushing the bounds of legality and are profoundly distorting the market. We have been pushing the Treasury hard for action on this issue, especially at our meeting with Treasury minister David Gauke last week. Members should take heart from the extensive package of anti-tax avoidance and evasion measures announced, and in particular the need for the correct income tax and NI rates to be paid even where offshore intermediaries are being used. Relatively little was said about IR35 this time around but we will continue to work with HMRC as they seek to provide greater clarification around the definition of ‘office holders’.
Jobs and growth has been the mantra of this government since the day it took office, but when we look in detail at the Budget, we have to recognise the limited tools the coalition has at its disposal. Getting the deficit down is still a key objective and is integral to the long term economic security of the UK; huge new government spending programmes just do not marry with that end. So the government is left with smaller, more targeted growth measures: tweaks to the tax code that cut the cost of hiring, reward workers with more take-home pay and reduce the corporate tax burden on businesses are positive examples of such targeted steps that our industry should welcome.