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What The Budget Means For Businesses

After almost 20 years, George Osborne has delivered the first all-Conservative budget in the House of Commons. If you’re thinking it doesn’t seem like a year since the last one was announced, you’re right it doesn’t. Shortly before the May election, the Conservatives and Lib Dems presented their own budgets as part of their election campaigns.

As Nick Robinson put it, the Conservatives had the unenviable task of implementing very conservative policies such as increasing the inheritance allowance for married couples to £1m, whilst sticking to their narrative of being a party for working people and “one nation”.

The budget contains plenty of changes affecting individuals: a lower benefit cap, a change in student maintenance grants, no BBC licence fee for the over-75s, etc., but what about businesses and employment law?

The relaxation in England and Wales of Sunday trading laws will make a difference to retailers, and may bring up the issue of changing current employees’ hours to work on Sundays. Case law has shown that this will rarely cause religious discrimination, but employers will still need to think carefully about how they can alter shift hours to benefit both the company and the workers. It is always better to get agreement than have to force people into a variation.

The decision to alter tax credit rules will have an impact as well. David Cameron promised to end what he called the “ridiculous merry-go-round” of taxing low-earners and then paying them benefits in return. Tax credit entitlements will be reduced for families with more than two children.

The Government will introduce an apprenticeship levy on large employers, meaning that those who offer apprenticeships will get back more than they put in. Money for training will be directly controlled by employers. Mr Osborne says “too many large companies have been leaving the training to others and taking a free ride on the system”.

The “plan for productivity” will be set out later today, led by consortium of British businesses. Productivity is generally defined as the level of economic output per hour worked against the cost incurred. Traditionally the UK has lagged behind Germany and the US. Current figures suggest that the output per hour is now around 15 per cent below where it would have been, had the pre-crisis trend continued. Increasing Britain’s productivity has been the target of a series of different governments. Raising efficiency has climbed the political agenda to sit next to the reduction of the deficit as one of Mr Osborne’s biggest challenges.

But the most sensational headline (from an HR point of view) is the National Living Wage. From April 2016, there will be no National Minimum Wage for workers aged over 25. OK, it’s more a rebranding than a huge reform, but the NLW will mean a short-term increase for low-paid employees. By April 2016, the minimum hourly rate over-25s may be paid will be £7.20. The aim is for this to increase to £9 by 2020.

This is what will concern most businesses. Although the increase in the employment allowance will help SMEs that are gradually building themselves up, any business relying on low paid workers for unskilled jobs will have plenty of calculations to do. Some may simply not be able to pay this higher National Living Wage, and to force them to do so could lead to job loss rather than creation. This will be a particular problem for care providers bidding for low-paying public sector contracts. The IoD and CBI have already voiced their concerns that certain businesses won’t be in a position to make up the tax credit gap. Rather than forcing businesses to pay more, why not cut NICs for those on low incomes to match the tax breaks?

Overall the budget is not as harsh on certain individuals as expected, but equally not as helpful to businesses as the March budget led us to believe. As usual, it is a political budget. It gets a number of unpopular polices out of the way early whilst seizing some of Labour’s ground over poverty whilst they are still in crisis. Labour’s policy for the May election was to raise the NMW to £8 per hour by 2020, so whoever wins the leadership election will either have to push the minimum even further or make benefits the flagship policy.

For most employers, the budget is positive. Corporation tax is falling, the employment allowance is rising and overall the economy is improving (albeit with stagnant productivity). The big question remains as to whether the two million people on low incomes will remain employed with a higher “living” wage.

Russell HR Consulting provides expert knowledge in HR solutions, employment law training and HR tools and resources to businesses across the UK.

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