Budget Reactions: CIPD – Government ‘must raise ambition on skills to tackle productivity’

Leaders from the HR world have been quick to share their feedback on yesterday’s budget, which has several issues for HR Professionals.

The apprenticeship levy

Philip Hammond told the Commons yesterday that then 10% levy fee that SMEs pay when they take on an apprentice would be halved, allowing SMEs to only contribute 5 per cent to the training, as part of a “£695 million package to support apprenticeships”.

The Treasury told FE Week the details would be decided on in early 2019.

Ian Brinkley, acting chief economist for the CIPD, the professional body for HR and people development, said:

“Investments in physical and digital infrastructure are welcome but the battle for UK productivity will be won or lost in the workplace. The skills agenda is central to this and we need to see much greater ambition from the Government. It’s promising to see that the Government has halved the apprenticeship levy contribution for smaller businesses but this is unlikely to greatly boost the number of apprenticeships offered by small firms, many of which lack the capacity to take on apprentices. The levy is still far too rigid to work in practice for many employers. We need a more flexible training levy that can help organisations fulfil a number of training and development needs rather than shoe-horning funds and efforts into the apprenticeships model alone. 

“It’s vital that the Government continues to review the operation of the levy to ensure it delivers the right results for all businesses and individuals, and that it can meaningfully help address the UK’s productivity challenge. The other big issue on skills is the need to provide small businesses with much more locally provided support on developing people management capability to boost both job quality and firm performance. 

IR35 Changes

In what is being called the biggest revenue-raising measure for the Treasury, as expected, the Chancellor announced that the IR35 rules introduced for contractors in the public sector will now be extended to those working for private firms.  The rules hit contractors who are deemed by HM Revenue and Customs (HMRC) to be employees, and will typically affect IT contractors, engineers and consultants.  The move has been much criticised by contractors and recruiters alike.

However, while confirming the extension of the off-payroll rules to large and medium businesses in the private sector , the Chancellor confirmed that roll-out would be delayed until April 2020 after ‘listening carefully to representations’.  This delay was welcomed by leading HR bodies.

Samantha Hurley, Operations Director at the Association of Professional Staffing Companies (APSCo) and Co-Chair of HMRC’s IR35 Forum, commented:

“There is no doubt that the timeframe is still tight, and we would have hoped to see draft legislation before next summer. However, organisations will at least have a clearer idea from the upcoming consultation on the detail of the changes to enable them to upskill their workforces to be able to make appropriate status determinations and to get their internal processes and IT systems in order, to cope with the new rules.”

Ian Brinkley, acting chief economist for the CIPD, the professional body for HR and people development, said:

“It is disappointing the Chancellor has decided to push ahead with extending the IR 35 tax reforms from the public sector to the private sector as this will result in significant additional red tape for employers and runs contrary to his stated intention of boosting enterprise in the UK.

“However we are pleased that the government has taken on board the need to phase in these changes from April 2020. What is also crucial in the run up to implementation of this tax reform will be the provision of good quality advice and guidance for employers from HMRC, with nine out of ten HR and payroll practitioners surveyed by CIPD saying they would need significant support to correctly determine employment status if these changes are introduced.”

Mental Health Funding

The Chancellor also announced a £2Bn increase in mental health funding.   The Centre for Mental Health estimated that poor mental health cost the UK economy £34.9 Bn last year, which the centre said equated to £1,300 for every employee in the UK economy.

While employers are being increasingly encouraged to improve the mental health support they offer to their workforce, the increased funding was welcomed by the HR community.

Matthew Lawrence, Aon’s Chief Broking Officer, Health & Benefits, EMEA said:

“It is positive that there is more focus on addressing mental health issues, and whilst this does not match NHS spend on physical health and arguably still signifies under-investment in a key health risk area, it is another step in the right direction.

“A Mental Health Crisis Service needs to be considered and managed – for instance, could ‘mental health ambulances’ actually result in more stigma?  It is important for an early intervention focus, so that A&E isn’t the place people have to turn to when all else fails.

“The Chancellor’s support for mental health does help keep it close to the top of the employer agenda. Expectation for employers to do more in this area will increase, so they need to think about their role in effectively supporting poor and good employee mental health.”

Katharine Moxham, spokesperson for GRiD said:

“We welcome the commitment to improving NHS services for those both young and old, who need mental health support.

“The role of employers in supporting those dealing with mental ill health has been seen as crucial, and has recently been positively debated in Parliament. Income protection insurance through the workplace (group income protection) has been recognised as a product that works well for employers to enable them to provide a financial safety net and to help support people suffering from mental ill health.

“Mental health issues accounted for 24% of all group income protection claims last year – more than any other reason. As an industry, we know how vital early intervention is in supporting people through mental ill health and moving them towards recovery and back into work, so it’s really positive to see that Government is taking steps towards better achieving this.”


Pensions, Earnings and Taxation

Despite much hype ahead of the budget, the Chancellor avoided making any major changes to the pensions system.

However there were changes made to taxation.  From April 2019, the personal tax allowance will rise to £12,500, with the higher rate threshold rising to to £50,000.   The national living wage paid to workers aged 25 or over will also rise from £7.83/hour to £8.21/hour next April, which represents a 4.9% pay rise for the lowest paid workers.

Work allowances – what people can earn before they start to lose their benefits – will also be increased by £1,000/year.

Alan Morahan, Managing Director, DC Consulting, Punter Southall Aspire, said:

“There can be little surprise that, despite the rumours, the Chancellor avoided major structural change to the pension tax relief  regime given the pressures the Civil Service is already under as it prepares the UK for Brexit.  The announcement to increase the personal tax allowance to £12,500  will help mitigate some of the effect of the auto-enrolment increases which happen in the same month.”