Steve Herbert reviews the Budget for members of The Surrey & Sussex HR Forum
In late October the new Chancellor of the Exchequer (and the first woman to ever hold that role) delivered her Autumn 2024 Budget and I was asked to explain the practical implications of this announcement to the members of The Surrey & Sussex HR Forum at their recent (and very well-attended) seminar alongside the learned Mike Cole from Penningtons Manches Cooper.
Here are some of the main discussion points that specifically look at the ramifications from a business perspective:
A Budget of unprecedented scale
The first thing to say is that Rachel Reeves’ Budget was on a scale that we rarely see. An additional tax-take of £42bn was announced, taking the total taxation of the UK economy in this parliament above even the levels hit after the Second World War when the nation was victorious but also basically bankrupt.
The cost burden on employers
And the bad news for British business is that it is mostly employers funding this latest financial pain.
Indeed, the increase to the employer’s National Insurance rate from 13.8% to 15%, coupled with the slashing of the lower threshold so that employer NI payments now start from as little as £5,000 of salary, account for some £26bn of the overall total to be raised according to the official figures.
Rising minimum wages and financial reality for businesses
But, the employment financial pain does not stop there. Both the National Living Wage (6.7%) and National Minimum Wage for younger workers (16%) have both increased sharply too, and far higher than inflation which currently stands at below the 2% Bank of England target rate.
Whilst the minimum wage legislation is a worthy ideal, it does need to be balanced with financial reality for business too, and both the above measures have increased sharply (40% and 52% respectively) during the course of what has been a very difficult half-decade for the business community.
Impact on businesses with younger and lower-wage workers
And for those businesses with younger, less well-paid, and often more transitory, workers, the pain will continue given that the government are committed to bringing the lower National Minimum Wage (£10 per hour in 25/26) up to the level of the National Living Wage (£12.21 per hour in 25/26).
That is a big gulf to fill, and if it happens during the next four and a half years of this parliament, will pile on the pressure on those employers reliant on such workforces (for instance, hospitality).
Increasing employment costs: What this means for employers
So, what does all this mean for the cost of employment?
The respected Institute for Fiscal Studies (IFS) crunched the numbers post-budget and found that the employer’s proportional cost increase in the 2025/26 year for a median earner was an additional 2.5%. The cost for higher earners (in % if not £ terms) was lower, but most worryingly the cost increase for the low paid was much higher as a result of the lowering of the ni threshold and those higher legal minimum wage levels.
Indeed, the IFS has calculated the employer cost increase for an employee earning between £5,000 and £10,000 per year could be 6% or even higher.
The above are really significant increases for often hard-pressed employers to absorb, particularly given that the growth in the national economy continues to be, at best, sluggish. As a result, the government’s own (but independent) forecaster, the Office for Budget Responsibility (OBR), have predicted that 60% of those costs will be passed on in either lower wages or increased prices next year, with that figure potentially rising to 80% over the course of this parliament.
To be clear this is anything but good news for business, and frankly it is hard to see how this will boost growth (the government’s stated objective) if employers are running flat-out just to keep pace with their growing staffing costs in the short term.
Some good news for smaller businesses
But it is not all bad news.
The little understood employment allowance has been more than doubled, and the upper cap on business claimants removed altogether. The government’s figures suggest that if all eligible employers adopt this measure, it will reduce the numbers seeing an increase from employer NI to less than half of all businesses.
Clearly such a measure favours smaller businesses, but any saving will be welcomed even by large employers given the challenges above.
The other bit of good news is that whilst employment costs have increased, there was not much in the way of new administrative admin burden around employee benefits provision announced.
Pensions: Stability amidst uncertain times
Importantly, the expected range of major changes to pension schemes (which included creating an employer National Insurance liability on pension contributions, the removal or limitation of tax-free cash, and (of course) the much-discussed levelling of tax relief to one rate for all) were all shelved.
This is helpful to employers, as changes in the pensions space tend to arrive alongside significant admin duties, legal requirements, and often a hefty additional price tag too.
The lack of the above changes has also left the door ajar for the continued use of salary sacrifice to mitigate the taxation burden, and savvy employers would be wise to reconsider this option. That said, the ever-higher National Living and National Minimum Wage issues need to be considered, as no salary sacrifice can legally reduce the employee’s earnings below those levels.
The one notable change to pensions was the inclusion of uncrystallised pension savings (i.e. before conversion of the fund to a regular pension income) in Inheritance Tax Calculations. This is a significant change for savers, but much less so for employers.
Arguably the issues are one of personal tax planning, and even then, only for those with significant pension and personal assets to pass on. Nevertheless, some employers may want to include this challenge in their high-earner strategies, or perhaps even fund advice to help savers mitigate any such concerns.
Capital Gains Tax and shareplans
The only other notable change was by virtue of significant rises in the level of Capital Gains Tax (CGT) – with the lower rate increasing from 10% to 18%, and the higher rate from 20% to 24%. This may have an impact on maturing shareplans, so employers should look into this and communicate the impact of any potential changes early to avoid any unexpected repercussions down the road.
Navigating the Autumn 2024 Budget
So, on the negative side, the Autumn 2024 Budget represents one hell of an employment cost uplift for so many businesses.
That said, those additional costs are not contingent on yet more administrative heavy lifting around benefits provision, so at least HR professionals can instead concentrate on other day-to-day tasks, and indeed the forthcoming raft of changes on employment rights and equality, which Mike Cole outlined in his seminar presentation.
It’s fair to say that it has been a difficult first half of the decade, and the Budget, the Employment Rights Bill, and the forthcoming Equality (Race & Disparity) Bill suggest that the second half of the decade could well continue to be rather testing for HR experts.
**Steve Herbert is a Brand Ambassador for Occupational Health Assessment Ltd, Employee Benefits & HR Commentator, Keynote Speaker, & Presentation Skills Coach
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