Spring Budget 2017: What this means for employment
No big surprises were expected from the Chancellor Philip Hammond in his first and last Spring Budget. His message was that the UK is benefitting from robust growth, record employment, and a reducing deficit. The UK economy is growing at a rate which is second only to Germany in the developed world.
While the Chancellor was prevented from increasing taxes due to election manifesto pledges, as expected, Class 4 National Insurance Contributions (NICs) for the self-employed will rise, though they will not be completely aligned with employee NICs. The Chancellor had considered reversing the abolition of Class 2 NICs which is to take effect in 2018, but decided against it. Instead, Class 4 NICs will rise by 1% to 10% from April 2018, and by a further 1% to 11% in April 2019. On average this will result in the self-employed paying 60p more in NICs a week. However, the lowest-paid self-employed earners will still see a drop in NICs through the abolition of Class 2 NICs. The Chancellor noted that an employee earning an average of £32,000 currently pays £6,170 in NICs whereas a self-employed person with the same earnings will pay on £2,300. Against this background, the distinction between the benefits received by the self-employed, including the state pension, has been dramatically reduced. Interestingly the Chancellor noted that one exception to this is parental benefits, and he pledged to consult on changes to these this Summer.
This measure reflects the growing concern that the growth of the so-called 'gig economy' and in individuals providing work through Personal Service Companies (PSCs) is resulting in lost revenues to the Exchequer and in unfairness in the tax system for those who are employed. The Chancellor referred to the Matthew Taylor Review on Modern Employment Practices (which will produce its final report in the Summer) and Mr Taylor's preliminary thoughts: namely that the tax differences between the employed and the self-employed is the key driver to the growth of such business models.
Recent Employment Tribunal rulings in cases involving Uber, Pimlico Plumbers and CitySprint have highlighted that in many cases, self-employment is a model adopted by such organisations for tax reasons but it also may have the effect of depriving workers of certain rights. Although in many cases the individuals may be happy to pay less in tax and NICs, they may in fact be not self-employed, but 'workers' – a middle ground between employees and the genuinely self-employed – who are entitled to holiday pay, the National Minimum Wage, working time limits and pensions auto-enrolment. The position is complicated by the fact there is no equivalent tax status for 'workers' and also the fact that Employment Tribunals and HMRC can and sometimes do come to different conclusions about whether an individual is self-employed or not.
A further measure was added to close the gap where services are offered through a PSC (where the Chancellor noted that the gap in tax and NIC payments was even greater than for the self-employed). From April 2018, the tax free dividend allowance available will be reduced from £5,000 to £2,000. This measure will mainly affect PSCs where the individual is usually a director-shareholder of the PSC. It comes against the background of other recent changes to off-payroll working in the public sector. From this April, public authorities engaging individuals who work through a PSC have to decide whether the IR35 rules apply, rather than the individual, and tax will be deducted accordingly by whoever is the 'fee-payer'. The changes are widely expected to be introduced in the private sector in due course.
The Chancellor announced a £5m fund to increase the number of so-called "returnships". The Prime Minister confirmed that the majority of such schemes would benefit women returning to work after a career break.
Consultations and calls for evidence will be launched (on 20 March) on the taxation of benefits in kind, accommodation benefits and employee expenses.
Finally, employers will have paid attention to the previously announced changes to further education in technical qualifications. 15 routes of so called 'T-Level' will replace some 13,000 qualifications for 16-19 year-olds and the number of hours training will increase by over 50% to 900 hours. They will also be supplemented by a high-quality 3 month placement. This is designed to catch up with standards set in countries like Germany, and ensure that technical education provides UK employers with the rights skills to compete in a global market post-Brexit.