Tomorrow chancellor Philip Hammond will deliver his first ever Autumn Budget. He will deliver it against a backdrop of slowing economic growth, continued uncertainty about Brexit, and a fragile government.
So what can business and the HR community expect in those areas most relevant to them? And what are they hoping and calling for?
Tech and skills spending
Hammond is apparently poised to announce £75 million for AI, £400 million for electric car charging points, £160 million for 5G technology, and reforms to progress on-road testing to get driverless cars on UK roads by 2021.
To support this the chancellor is expected to pledge £76 million to boost digital and construction skills, and £100 million for an additional 8,000 fully-qualified computer science teachers supported by a new National Centre for Computing.
Also expected is a new government partnership with the CBI and the TUC to oversee a national retraining scheme, helping adults to retrain and get the new skills they need. To start, £36 million will be invested in digital skills courses using AI.
Carolyn Fairbairn, CBI director-general, said: “Investing in all our skills is at the heart of building an economy that is fit for the future. Skills are vital to competing globally, and seizing the opportunities of the fourth industrial revolution. This is the best way to drive the productivity the UK needs to increase pay.
“The CBI looks forward to working alongside the government and the TUC to build an approach that works for the long term. It is the training decisions that take place every day in businesses across the country that will make a difference – so a genuine partnership is needed to get the system delivering effectively for businesses and employees.”
Martin Spring, director of the Productivity and Efficiency Research Centre at Lancaster University Management School, told HR magazine: “We are hoping to see support for the industrial strategy initiatives around digitalisation, as set out in Juergen Maier’s recent Made Smarter Review. From an HR perspective this requires support for and research on management development, especially in supply chain firms, as well as skills development – so that digitalisation leads to more value-adding and interesting jobs rather than simply replacing people with ‘robots’.”
The City & Guilds Group is calling for the remit of the apprenticeship levy to be broadened. Chief executive Chris Jones said: “Turning the apprenticeship levy into a broad skills levy will provide the flexibility employers need to upskill and reskill existing workforces as well as support new entrants into the workplace.
“For example, T-Level students will need quality work experience placements and allowing levy funds to help get this right will reap rewards".
Self-employed VAT changes
Last Budget saw the government perform a hasty U-turn following its proposed increase to national insurance contributions for the self-employed to bring them in line with the employed. The change this time is expected to be a lowering of the threshold at which those set up as a business in themselves must pay VAT (from £85,000 currently) as recommended by the Office of Tax Simplification (OTS).
But IPSE, the Association of Independent Professionals and the Self-Employed, has warned against this. "Lowering the threshold for VAT registration would be a disaster for self-employed people, who have been the backbone of the UK economy in recent times,” said IPSE’s economic advisor Tom Purvis. “If the chancellor adopts the OTS’s proposals it would be seen as just another cash grab – part of a sustained attack on the self-employed.”
Also slated for this Budget is a potential extension of IR35 legislation to include the private as well as the public sector. This would mean responsibility for determining the employment status of contractors falling on the private sector companies who engage them.
“The government looks increasingly likely to extend the off-payroll IR35 rules in this week’s Budget to level the field between public and private sector workers," said Chris Blundell, employment tax partner at MHA MacIntyre Hudson. “This will lead to a significant increase in labour costs and a major administrative headache for companies that engage contractors working through their own companies, exactly as witnessed in the public sector since April this year."
He added: “While the reforms have led to public sector bodies adding about 90,000 people to their payrolls in the three months to 30 June 2017, they have also resulted in labour and skill shortages as a number of IT contractors, locum doctors and nurses now choose to work less or work only for the private sector."
Gig economy protections
This Budget may also outline plans to protect workers at the potentially more exploitative end of the UK’s growing gig economy. The Budget comes days after a joint draft Bill on ending gig economy exploitation from the Work and Pensions and Business Committees called for a new 'worker by default' status, which would place the onus on companies to prove self-employed status rather than forcing workers to via the courts.
The Bill also recommended companies be fined if they falsely classify people and deny them benefits. It proposed setting a wage premium for workers without contracted hours that is above the national minimum (£4.05 to £7.05 depending on age) and living wage (currently £7.50 an hour).
Lesley Giles, director of the Work Foundation, told HR magazine her organisation was “calling for the importance of advancing more good work.”
She said: “This means we will be looking for government to live up to its promises over the coming year, with a focus on supporting better management among businesses through the industrial strategy, committing to the recommendations of the Taylor Review around employment status and rights at work, backing improvements in the National Living Wage, along with better health and wellbeing at work.
“We also hope to see a focus on advancing participation and progression in the labour market through skills reforms that strengthen work-based career pathways and apprenticeships.”
“While an explicit tax hike for self-employed workers may not be revisited in this week’s Budget, other measures that serve to tackle the issues of job insecurity – and which may have much the same effect on tax receipts – might be,” said Geraint Johnes, professor of economics at Lancaster University Management School.
Public sector pay
Hammond’s message is expected to be sympathetic. He has already given police and prison officers a 1% rise plus a 1% bonus for 2017-18. However, increasing public sector pay across the board in line with either prices or private sector earnings would be expensive, adding £6 billion a year by 2019-20 to the cost of employing 5.1 million public sector workers. Teachers for example are already set to remain on 1%.
Successive governments have cut tax reliefs on pensions, limiting the annual amount that qualifies (now £40,000), while the 'lifetime allowance' has fallen to £1 million from £1.8 million in 2010. Further cuts are possible, but unlikely, say experts.
Claire Carey, a partner at Sackers, commented: “As ever, rumours abound that the chancellor could once again look to pensions tax relief to help fill the gaps in Treasury coffers. Possible options include replacing the current system of providing pensions tax relief at an individual’s marginal rate by a flat rate of tax relief for all (for example, aligned to the 20% basic rate relief).
“More recently it has emerged that plans may be afoot to cut tax relief available to older savers so as to help provide greater relief for pension savers in their 20s and 30s.”