The Confederation of British Industry (CBI) has released a report ‘A Better Off Britain’. This coincides with the annual conference which was held in London last week. The CBI said ideas are needed to provide immediate relief for families and low-income workers. The ideas include changes to national insurance, free childcare and maternity leave.
If agreed, the proposal could mean raising the threshold at which an employee has to pay national insurance from the current £7,956 to £10,500. For a family with two earners this could mean an extra £363 per year. While this may not seem like a lot, it could make a big difference for some families.
Childcare costs have risen 27 per cent since 2010, yet the average couple with two children saw earnings fall by just over £2,000 in real terms between 2010 and 2013. There are calls to extend the free childcare scheme to help. Currently three and four year olds are eligible for 15 hours per week of free childcare. This must be spread over a minimum of three days for at least 38 weeks of the year. If agreed, this could also be available to one and two year olds. A family with a one year old child could potentially save over £3,000 per year.
Recommendations have also been made to extend maternity pay. Currently an eligible mother can receive up to 39 weeks maternity pay. The first six weeks at 90 per cent of her average weekly earnings and the next 33 weeks at the current statutory rate (£138.18 as of April 2014) or 90 per cent of her weekly average earnings; whichever is lower. This could be increased to 52 weeks; narrowing the time between the end of maternity pay and when assistance for childcare begins.
Director-general of CBI, John Cridland has said ‘The UK needs to face up to some real long-term challenges. Changing skills needs, greater global competition and low social mobility mean for many the pathway to a better life is tough and far from clear’. With this, a number of other proposals were outlined. These included ways in which businesses can help employees to prepare and manage any unexpected financial situations. A business focus on raising productivity to boost pay, ways to ensure that young people keep up with school work, and improving ways into higher-skilled better-paid work, were also put forward.
It is also proposed that business adopt a presumption in favour of flexibility from the stage of advertising to help employees save on childcare costs. Details of the proposals have not yet been given. While the aim is to help working families, the impact on SMEs has yet to be mentioned.
Here’s a run-down of the key areas in the CBI’s report.
Business still spends the same proportion of income on employing staff, but wages are a shrinking part of this.
Business spending on employing workers today – through paying wages, contribution to pensions and making National Insurance contributions – is 72.9% of a business’ income. This is a little above the average over the last 60 years, but more of it goes to the government or into pensions of current and former employees. If the employee NIC threshold is raised to £10,500, it will save dual-earner households £363 a year.
Productivity and competitiveness define what firms can pay
The value created in each hour an employee works determines what businesses can afford to pay their staff. For example, in manufacturing this may be the number of widgets made in an hour, and in hospitality it might be the value added to the experience of the customer. The CBI argues that in the long term, improvements in firm productivity and competitiveness are the only sustainable way of raising living standards.
The UK must increase productivity
Productivity growth has been exceptionally weak since the crisis. Output per hour is still 16% lower than where it would have been had productivity continued to rise at the same pace as before the crisis. Overall, productivity in the UK also lags behind other countries like the USA and Germany. The CBI is calling on firms to rise to the challenge and work smarter to raise productivity and help drive higher living standards.
A third of workers are still stuck in the bottom pay group even after 14 years
More and more ‘middle jobs’ require higher skills – by 2022 50% of jobs will require skills like foundation degrees and professional diplomas or higher. But as a result, routes into higher-skilled, higher-paid work are becoming more difficult for workers entering our labour market at the bottom. Research commissioned by the CBI found that one in three workers who were in the lowest wage group had not moved up at all 14 years later.
Better vocational routes to higher skills are needed to help workers get on, and to fill the skill shortages that worry business
The vast majority of the UK’s 2020 workforce have already left school and are working. So businesses will not be able to find all of the higher-level skills that they need only by recruiting young people looking for their first job. The CBI believes that helping workers to get on, and tackling skill shortages has the same solution – higher level vocational education. They believe that we need more vocational routes to higher skills, like apprenticeships, that allow people to earn and learn at the same time. Businesses must work with colleges and universities to create these routes to higher skills.
Education is the best long term tool to boost growth, living standards and social mobility
Education is a very significant driver of an individual’s living standards. The difference in achievement at school between children from the most deprived and least deprived backgrounds explains a large part of the difference in their earnings in later life. Children from the poorest households are behind other children by the time they are three years old, and the gap widens as they go through school. The CBI believes that improving the quality of our schools to the same level as the best in Europe will be worth £8 trillion over the lifetime of a child born today, and in giving every child a better start in life it will significantly increase social mobility.
Business has a big role to play in education
Businesses rely on their people for success, and the CBI argue that as a major stakeholder in our schools system, firms should do their bit to help schools to deliver more. This might be delivering work experience, ensuring careers advice matches up to the jobs in demand or giving their time and expertise as school governors. The CBI are also asking firms to support social mobility by opening their doors to talented people from a wide range of backgrounds and experiences.
Saving in the UK is low, by international standards
Savings are important because they can help provide a buffer when things go wrong. In the last few years, the long squeeze on household incomes has eaten into families’ savings, but even before this households in the UK were not saving as much as those elsewhere. In the UK our net savings rate is just 2.4% compared to a 7% average across the countries that use the Euro and 10.3% in Germany. One in five adults in the UK has no savings whatsoever.
Businesses can help people to build a buffer for a rainy day
As the economy improves, the CBI thinks more should be done to help people to save. They’re asking the government to make schemes simpler but they’re also asking businesses to think about offering a wide range of workplace saving options – like Corporate Individual Savings Accounts (ISAs) which deduct regular savings for staff through payroll, or share schemes.
Some really interesting ideas here and I’m in broad agreement with many of them. However, they have to be affordable by small businesses, which make up the great majority of the UK’s economy, so it remains to be seen how these will be funded.
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