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Employment

A New PM and a Growth Plan – Consequences for UK Employment Law

Monday, October 10, 2022

As Liz Truss manoeuvres into number 10, via the odd three-point turn, she aims to establish her authority as the new prime minister. We look at the impact her administration will have on employment legislation.

As we all know the new Chancellor Kwasi Kwarteng stood up to give his first major fiscal announcement on 23rd September, confident that his “Growth Plan” would set the new administration on a positive path.

Within the speech there was confirmation of the Government’s intervention in energy pricing for both consumers and commercial users of electricity and gas, this was broadly welcomed.  The U-turn on IR35 was also generally accepted as a positive step but unfortunately the decision to withdraw the higher rate tax band of 45% and additional cuts made this “mini-budget” the single greatest tax-cutting announcement in 50 years.

This did not sit comfortably with MPs on all sides of the House, economists, political commentators, the public or evidently the City whose response forced the Bank of England to take drastic measures.

We watched the following catalogue of events unravel:

  • FTSE 100 fell by over 230 points
  • Pensions were adversely affected resulting in the Bank of England spending £65bn buying bonds.
  • The pound hit an all-time low against the dollar £1.03
  • Over 1600 mortgage products were swiftly withdrawn by lenders.
  • Essentially the cost of borrowing increased as a lack of confidence in the Governments position led to a reluctance to cover the debt.

All in all, a devastating indictment of what was supposed to be a positive message from the new Chancellor and PM.

As we now know Liz Truss has announced that she has listened to the opinions and despite continuing to state she would want the rate removed she is reversing the high-rate tax decision and re-instating the 45% level for those earning more than £150k per annum.

The pound has recovered a little, but the markets remain in a state of alert noting the impact and bite of the energy crisis compounded by the interest rate rises, cost of borrowing and *300,000 mortgages coming to the end of their fixed rate offer every quarter. [*ref BBC News comment from mortgage adviser Sally Mitchell]

We thought it might be helpful to share the main points from the plan that will impact an organisation’s HR function.

National Insurance

To incentivise employers to maintain and grow headcount the 1.25% increase introduced in April 2022, aligned with the health and social care levy arriving in April 2023, have both been scrapped. The NIC increase will be reversed from November 2022.  It will also permit workers to take home a more significant proportion of their pay.

Income tax cuts

In further attempts to put a greater proportion of income in workers’ pockets the basic rate of income tax will reduce by 1%, (20% to 19%), from April 2023, (the proposed removal of the highest income tax band of 45% for income over £150,000 will now not be abolished as planned).

Bankers

The EU’s cap on banker’s bonuses followed the 2008 recession and had intended to contain the financial gains incentivising high-risk activity.  Instead, bankers’ salaries simply increased and the cap, x2 fixed salary is to be removed. It’s intended to be a positive signal to the financial institutions and a way to encourage moves back to the City.

Strikes and Disruption

Kwarteng’s Growth Plan seeks to bring order and a level of logistical resilience to overcome the impact of industrial action.  The Government is set to introduce legislation providing minimum service levels enabling commuters to get to work. Unions must have pay offers put to a vote before they can call strike action which can only occur if the offer is rejected by a majority. Details to be announced.

IR35

After five years of confusion, lack of clarity and indecision, HMRC’s IR35 reforms will be removed, as of 6 April 2023. It had previously placed the responsibility for tax liability from individual contractors onto the employer it will now revert to the individual.

One contentious aspect which needs to be addressed is the effectiveness of the tool used to assess the correct tax categorisation of contractors.  The digital assessment resource CEST (which stands for Check Employment Status for Tax) is considered an unreliable measure which should now receive an urgent upgrade as it is still referred to be HMRC. https://www.gov.uk/guidance/check-employment-status-for-tax

Childcare Affordability

The Growth Plan identified the need to address the affordability of accessible childcare no details or timescales are supporting this statement; an opportunity may arise with the Chancellor’s announcements in November.

Immigration

To address the shortfall in key roles, skills, and productivity the Government will be introducing measures to ensure the immigration process is working in harmony with the country’s needs. Again, this may be referred to in greater detail next month.

50+ Employment

The Growth Plan identified the loss of mature workers from the workforce following the pandemic. There is intended to be a recruitment drive to encourage the over 50s back into the workplace and encourage longer working lives. Yet no details supporting this statement have been released.

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