Autumn Budget 2017 - what does this mean for employers and pensions?
In his Budget, Chancellor Phillip Hammond announced that the Government was resolved to look forward and not backwards and to produce a "balanced approach" to prepare Britain for the future. He was clear that the top priority for the weeks ahead was early progress in the Brexit talks, and announced that he had allocated a further £3 billion to pay for Brexit preparations. Perhaps for this reason there were very few significant measures in other areas, with the exception of housing and the abolition of stamp duty for first time buyers of properties up to £300,000.
As well as Brexit, the Budget was of course set against a background of low productivity growth and the Government's continued struggle to reduce the deficit (annual borrowing is forecast at £49.9 billion or 2.4% of GDP and is planned to reduce to £25.6 billion or 1.1% of GDP by 2022/3). This restricted the Chancellor's room for manoeuvre. It was however significant that overall debt will peak this year and will fall thereafter.
For employers the headline points were:
- A pledge to keep under review the flexibility that Levy-paying employers have in spending the Apprenticeship Levy. The Chancellor praised the progress made in creating 3 million apprenticeships by 2020 thanks to the Apprenticeship Levy and also announced the investment of a further £20m to support Further Education Colleges prepare for T-Levels.
- An increase in the National Living Wage by 4.4% in April 2018 from £7.50 per hour to £7.83 per hour. He said this will amount to a £600 increase for a full-time worker on the National Living Wage and amounts to a £2000-a-year increase for such workers since it was introduced. Including the income tax changes in recent years this is said to benefit full time workers by an extra £3,800 per year for full time workers on the National Living Wage.
- An acceptance of the Low Pay Commission's recommended increases to the National Minimum Wage (for workers under 25). These will increase:
- from £7.05 to £7.38 for 21-24 year olds
- from £5.60 to £5.90 for 18-20 year olds
- from £4.05 to £4.20 for 16-17 year olds
- from £3.50 to £3.70 for apprentices aged under 19 or in the first year of their apprenticeship.The Chancellor said this would represent the largest increase in youth rates in 10 years.
- Of course these increases to the NLW and the NMW (which are now aligned to increase at the same time each April) will also cost employers more since the minimum employer contribution for auto-enrolment is also set to increase from the current 1% to 2% from 6 April 2018, and then to 3% from 6 April 2019.
- An increase in the Personal Allowance to £11,850 in April 2018 (up from £11,500), and the higher rate income tax threshold will increase to £46,350 (up from 45,000).
- A National Retraining Partnership in conjunction with the CBI and the TUC which would help retraining during working lives especially to boost digital skills and to help expand skills in the construction sector.
There was virtually no mention of any changes to pensions, which some commentators had previously thought might be an area for the Chancellor to tinker with. The lifetime allowance for pension savings will increase in line with CPI, rising to £1,030,000 for 2018-19 which is a helpful measure as it allows people to save more as part of tax efficient pension savings.
The Chancellor's speech did not mention a move to replicate the off-payroll working rules in the public sector (the IR35 rules where contractors are paid through intermediaries) over to the private sector, but in the fuller papers the Government has suggested that it would be fair for this to happen. It referred to research and consultation currently being carried out and due to be published in 2018. The Government said it would draw on the experience of the public sector reforms and that it would consult "carefully" to take into account the needs of businesses and individuals who would need to implement any change.
The Budget papers also refer to publishing an Employment status discussion paper as part of the response to Matthew Taylor’s review of employment practices in the modern economy, exploring the case and options for longer-term reform to make the employment status tests for both employment rights and tax clearer. The Government stated that this is an important and complex issue, and so it would "work with stakeholders to ensure that any potential changes are considered carefully".
As previously announced, employer's NIC contributions on termination payments over £30,000, which were planned for April 2018, have been postponed for a year, but the taxation of notional notice pay (regardless of the wording of the employee's contract) from April 2018 is going to go ahead and is now enshrined in the Finance (No. 2 Act) 2017. Certain changes to the taxation of employees' expenses are also referred to.
Public sector pay rises in general were not mentioned but the Chancellor pledged to provide funding for ongoing discussions on a settlement to increase nurses' pay.
One interesting measure was that there would be no benefit in kind charge to tax for charging an electric car at work. Rates for new diesel cars that don’t meet the latest standards will go up by one band. The existing diesel company car tax supplement will go up by one percent. These measures for diesels will only apply to cars and not to vans. However the Budget papers also state that for company cars, the Fuel Benefit Charge and the Van Benefit Charge will both increase by RPI from 6 April 2018.
For small businesses, the Chancellor has maintained the VAT threshold at £85,000 but pledged to consult on its design. He announced that he would also change the increase in business rates by moving them from RPI to CPI. This was said to be specifically directed to help the 5.5 million small businesses that account for nearly half of all private sector jobs.
Finally, the OBR is forecasting another 600,000 people in work by 2022.
Apart from the increase in the NLW and NMW, and the threat of off-payroll working in the private sector, this was a relatively neutral budget for employers. All eyes are likely to be far more focussed on Brexit talks, to enable businesses to plan properly for the future.