In November, the UK Chancellor delivered his Autumn Statement which contained a host of reforms including changes to pensions, a boost to the National Living Wage and a stricter approach towards benefits and jobseekers.
Chancellor Jeremy Hunt claimed a tax cutting agenda for the statement, and the biggest headline measure is part of this narrative – cutting the main 12% rate of employee National Insurance Contributions to 10% from 6 January. This change will affect 28 million people, saving someone with an average salary £450.
Growth was also central to the statement, with Hunt announcing 110 new measures designed to grow the economy. The chancellor did a lot to promote measures which should boost growth. A key part of this was the announcement of a full expensing programme for businesses to encourage investment. One of the biggest problems in UK productivity is low business investment and this initiative will allow businesses to write off big investments against their tax bill – incentivising them to upgrade technology and equipment and invest for better productivity.
However, the Office for Budget Responsibility downgraded its forecasts for economic growth. Long term annual economic growth was traditionally 2% since the Second World War. Since the global financial crash 15 years ago, annual growth has been about 1%, and the OBR predicts the next few years will be about 0.6%. This means growth will remain sluggish, and the chancellor will be disappointed with those downgraded figures.
Together with inflation coming down slower than hoped, the government has been forced to raise taxes overall to pay for these measures. It is now in receipt of the highest tax intake since WWII, which means that many people won’t necessarily be feeling the benefits of this personal tax cut. With public service budgets set to see large spending cuts in real terms after the next election, in places it felt slightly reminiscent of the austerity agenda.
Back to work
As part of the proposed welfare reforms announced in the statement, benefits will be increase in line with inflation by 6.7%, but there will be tougher requirements for those who claim them to look for work - facing mandatory work experience if they do not find a job within 18 months.
While the premise of encouraging people back into work is positive, it is vital that all measures are proportionate and do not undermine people’s wellbeing and ability to find suitable and sustainable work.
Concerns were also raised by many about how the reforms will hit workers with disabilities and long-term health conditions, who may struggle to find work that suits their needs. If the reforms fail to take into account other reasons people who are out of work might struggle, such as limited access to internet and technology, childcare and caring responsibilities, as well as travel difficulties, then they won’t be successful and will fail the very people they should be helping.
The promise of nearly £800m investment in health, including mental health support, was welcome news, but the Back to Work Plan is arguably too focused on sick and disabled adults already out of work, without also looking enough at how to prevent the illnesses in the first place. One of the key issues that was not addressed is how employers can manage absent employees more effectively to avoid losing them from the workforce.
According to the OBR, the number of workers on health-related benefits is expected to rise by 600,000 — from 2.8 million now to 3.4 million in 2028–29. It also expects that the reforms to the Work Capability Assessment for sick and disabled people will only add 10,000 workers to the workforce by 2028–29 – achieving little net gain. What is really needed is reform to Statutory Sick Pay and improved access to occupational health support to prevent more people from falling out of employment in the first place.
Many organisations already offer support through their employee benefits programme, and the government should focus on incentivising businesses to offer more of these services to support workers with illnesses and put in place prevention from work-related issues occurring.
If these measures are to have the intended results, the government will need to take a joined-up approach with better access to tailored employment support to ensure people don’t lose their benefits if they try work and it doesn’t work out. The creation of more flexible jobs will also be crucial in helping people get into and stay in employment, and help employers address ongoing skills shortages.
The National Living Wage will increase by more than a pound an hour from April to £11.44 and for the first time, will also be extended to 21-year-olds. This will come as a boost for many while the cost-of-living crisis continues – particularly when the reduction in NIC is taken into account.
Although the rise in the National Minimum Wage is welcome and good news for low paid workers, together with the freeze in employer NIC thresholds, employers are likely to see the cost of employment continue to rise over the coming years. Without help from the government to improve productivity to pay for the increased cost of employment, many businesses, particularly smaller ones, could struggle to afford this.
It is therefore vital for the government to work with employers to develop policies and support that can help raise business investment in the skills, people management capability and technology needed to improve productivity, especially in low-skill and low-wage sectors.
The statement also included a shake-up in the pensions system, aimed at giving workers greater control over where they build their retirement funds. Under proposed reforms, workers will be given the legal right to ask their employer to pay into a retirement fund of their choice and the UK pensions lifeboat fund will be given a new role as a consolidator of pensions. This will allow people to have a lifetime pension, or a ‘pot for life’, which could reduce the need for pension transfers and help workers keep track of multiple pensions pots later in life. We can expect the government to consult on these reforms through a call to evidence expected shortly.
The government also committed to retaining the pensions triple lock, which will mean the state pension will be increased by 8.5% from April 2024. This is the second significant increase in a row and means that pensions will rise more than in-work benefits.
On skills, £50 million of funding over the next two years was announced to boost apprenticeships levels in key growth areas. Alongside increases to the NMW, the minimum hourly wage for apprentices will also rise by 21% from April 2024.
Although welcome, the funding alone is likely to fall short of what is needed to maximise the impact of apprenticeships. The Apprenticeship Levy will continue to act as a brake on employer investment without significant reform, meaning apprenticeships and skills and will fail to provide the boost to economic growth that they have the potential to bring.
While the Autum Statement did address some important issues around jobs, skills, incomes and productivity, bolder reforms are needed if the UK is to drive growth, retain talent and remain competitive. HR professionals will play a key role in translating these policies into workplace practices that help business performance and ensure employee wellbeing, which will be vital in improving productivity and growth in the economy.
By Iain Wright, Chair of the CIPD Policy Forum
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