The Chancellor, Philip Hammond, has delivered an Autumn Budget highlighting Britain’s bright future, with a focus on investment in the economy to ensure every generation can look forward to a better standard of living. For a country labouring under the uncertainties of Brexit and a potential critical skills shortage in some sectors, such as construction and digital business, the government’s focus was on ensuring investment in ‘new technologies’ such as driverless cars and artificial intelligence ‘to keep Britain at the forefront of technological innovation’ and to support and prepare people for the challenges ahead.
So what did the budget deliver for employers?
Investment in skills and training
- The Chancellor confirmed that the government’s commitment to 3 million apprenticeships starts from 2020, but confirmed that it ‘will continue to work with employers on how the apprenticeship levy can be so spent so that the levy works effectively and flexibly for industry, and supports productivity across the country’.
- With an eye on the need for future ‘innovators’, the Chancellor also announced, amongst a number of measures focused on education, investment in maths and computer studies in our schools. Recognising the need for greater diversity in science, technology, engineering and mathematics, the government will ‘explore how to improve the accessibility and transparency of data on this issue by institution and subject‘.
- The Chancellor announced a new ‘National Retraining Partnership’: a formal skills partnership between the government, the Trades Union Congress (TUC) and the Confederation of British Industry to develop a National Retraining Scheme, which will give ‘people the skills they need throughout life to get a well-paid job’. The scheme will work with the new Skills Advisory Panels to ensure that local economies’ needs are reflected.
- A first step of this new Partnership will be to oversee targeted, short-term action in sectors with skills shortages, with an initial focus on construction and digital skills. The government has committed to invest £30 million to test the use of Artificial Intelligence and innovative EdTech in online digital skills courses, allowing learners to benefit from this emerging technology, wherever they are in the country. There will also be new employer-designed courses in construction and digital sectors.
- The Chancellor also highlighted the housing challenge – the fact that new buildings may be planned but with no one to build them. Consequently, ‘to train the construction workers of tomorrow’, the government has committed to investment to develop construction skills across the country and is working to finalise a ‘Construction Sector Deal’ to support innovation and skills in the sector.
- Work-based training will also receive support, with £8.5million of investment over the next two years for Unionlearn, an organisation of the TUC which boosts learning in the workplace.
This general focus on the apprenticeship levy, ‘retraining’ and skills seems likely to be a growing trend in successive Budgets, as the government tries to address the impact on society of the growing use of automation including AI and robotics (and related job losses).
To support its ambitions on innovation and research, the government is encouraging the best and the brightest international scientific and research talent to work in the UK, by changing immigration rules to enable world-leading scientists and researchers endorsed under the Tier 1 (Exceptional Talent) route to apply for settlement after three years; making it quicker for highly-skilled students to apply to work in the UK after finishing their degrees; and reducing red tape in hiring international researchers and members of established research teams. This is alongside ‘the expansion of the exceptional talent route, benefitting current and future leaders in the digital technology, science, arts and creative sectors’.
Making work pay
The Chancellor was keen to stress the government’s commitment to deliver for Britain’s workers, announcing the following changes:
- The National Living Wage will rise by 4.4%, from £7.50 to £7.83 per hour, from April 2018.
- The government’s acceptance of the Low Pay Commission’s recommendations on rises in the National Minimum Wage from April 2018, will mean that workers aged 18 to 24 years old will see an increase from £7.05 to £7.38 per hour.
- The personal allowance will be increased to £11,850 from April 2018 and, at the same time, the higher rate threshold for income tax will be increased to £46,350, allowing ‘families to keep more of the money they earn’.
- The provision of rail cards (allowing a discount of one third on rail fairs) for those aged 26 to 30. Also, the law will be be clarified so that charging an electrical vehicle at work will not be a benefit in kind from next year. However, a diesel supplement will hit company car tax from April 2018. These changes will need to be reflected in applicable employer policies. The budget also announced some changes to taxation of employee expenses following the call for evidence published in March 2017.
Creating a competitive tax system that is robust against abuse
Following on the government’s off-payroll working reforms in the public sector in April 2017, there was much anticipation of an announcement extending these reforms to the private sector to ensure all individuals who effectively work as employees are taxed as employees, even if they choose to structure their work through a company. The government has committed to ‘carefully consult’ on how to tackle non-compliance in the private sector, drawing on the experience of the public sector reforms, including through external research already commissioned by the government and due to be published in 2018.
Whilst the Chancellor’s speech made no mention of the Matthew Taylor review, the budget papers confirm that the government will be publishing a discussion paper as part of its response to the review, ‘exploring the case and options for longer-term reform to make the employment status tests for both employment rights and tax clear‘. Recognising that this is an important and complex issue, the government has expressly stated that it ‘will work with stakeholders to ensure that any potential changes are considered carefuly’.
The end of tax breaks for personal service company contractors in 2019?
The government will consult in 2018 about the extension of recent IR35 tax legislation to cover all supplies of Personal Service Company (PSC) contractors to private sector organisations. Contrary to news reports last month, it appears that this extension, if it happens, will not take effect with effect from next April. Before any implementation, the Government wishes to draw on the experience of the public sector reforms earlier this year, and external research already commissioned by the government and due to be published in early 2018.
HMRC seems to be confident that the public sector reforms of earlier this year have been largely successful and so we think the writing is on the wall and believe that the reforms will be extended in some way to the private sector, in 2019 or 2020.
If and when the changes are applied to supplies of PSC contractors in the private sector, it is likely to have a massive impact on the cost of using PSCs, not least because it will involve the additional costs of employer’s NICs where PSCs are assessed as falling “inside” IR35.
Did the Chancellor build a budget that ‘is fit for the future’?
The Chancellor was keen to stress that we are at a ‘turning point in our history’, his budget delivering a strong message of investing in the future and supporting working families in an age of technological advancement and against the backdrop of Brexit. What is clear is that the world of work is changing fast and that protecting and developing skills, as well as learning new ones, will all be critical to employers future-proofing their businesses. All employers, whatever their sector, will need to take steps to embrace technology and bring their workforce with them.
Employers keenly await the government’s discussion paper and response to the Matthew Taylor review, as well as the consultation on proposed off-payroll working reforms in the private sector. On Monday, the Select Committees for Work and Pensions and the Department of Business Enterprise Innovation and Skills published a report and draft Bill, which will no doubt also form part of the government’s considerations in its response. Employment and its role in enabling businesses to grow and thrive is high on the government’s agenda and employers should understand how their engagement models will be impacted by developments in the ‘on-demand’ economy, evolving workers’ rights and Brexit to ensure their business is ready for the future of work.