How will it affect employers and employees?
With record levels of employment, improving living standards and economic growth, it’s no surprise that chancellor George Osborne seemed upbeat as he delivered the 2015 Budget.
PM highlights the key areas for HR professionals.
Average pay increases of 2.1 per cent may be above inflation but as employee calls for bigger pay rises grow louder, HR and reward professionals might be wondering how to square a wage bill increase with the board. But the chancellor offered some reward respite today.
He confirmed the well trailed policy that the personal tax-free allowance would rise to £10,600 in April. And he revealed that the government would go further.
“The personal tax-free allowance will rise to £10,800 next year – and then to £11,000 the year after.
“That’s £11,000 you can earn before paying any income tax at all.
“It means the typical working taxpayer will be over £900 a year better off.”
It represents a tax cut for 27 million people and means almost 4 million of the lowest paid will pay no income tax at all.
As announced before the Budget the national minimum wage will increase by 20p to £6.70 on 1st of October and the apprenticeship rate will rise by an unprecedented 57p. Low inflation rates, revised down to 0.2 per cent by the Office for Budget Responsibility (OBR), will also help make pay packets go further.
‘High earners’ will see the higher tax rate rise above inflation for the first time in seven years from £42,385 this year to £43,300 by 2017/18.
Record employment levels of 73 per cent and the lowest benefits claimant count since 1975 enabled the chancellor to say the government was “moving towards” full employment.
ONS figures released this morning show that unemployment has continued to fall by 102,000 to 1.86 million (5.3 per cent).
But critics said that much of this jobs growth was in low-paid or insecure work such as zero hours contracts, people setting up their own businesses, or that the majority of posts were in London.
Rejecting this as “nonsense”, Osborne said: “How many of the jobs are full time? 80 per cent. How many of the jobs are in skilled occupations? 80 per cent. And where is employment growing fastest? The North West. Where is a job being created every ten minutes? The Midlands. And which county has created more jobs than the whole of France? The great county of Yorkshire.”
Mark Beatson, chief economist for the CIPD, said: “The government is right to cheer the rise in employment, but there are still some big questions that they have failed to answer on productivity. It’s astonishing that productivity wasn’t referenced even once in the chancellor’s speech, and yet this is the biggest challenge that the economy and businesses face now. We need to understand how we can make more of our people, our assets and our infrastructure in order to boost business performance.
“We saw announcements in the budget designed to encourage investment, but we saw little which will make a real difference to how UK employers develop workforce skills or use existing workforce skills effectively.”
The OBR confirmed that at 2.6 per cent, the British economy grew faster than any other major advanced economy in the world last year.
“That is 50 per cent faster than Germany, three times faster than the euro-zone – and seven times faster than France,” Osborne said.
National debt has also fallen faster than expected, prompting the government to end the squeeze on public spending ends a year earlier.
“In the final year of this decade, 2019/20, public spending will grow in line with the growth of the economy.”
However, huge public sector cuts remain in the pipeline in the form of £13 billion savings from government departments by 2017/18.
The chancellor signalled support for heavy industry, digital advances and creativity and innovations in the science sectors, which is set to come in the form of tax cuts or investment.
“You can’t create jobs without successful business. As well as the right infrastructure, businesses also need low, competitive taxes,” he said.
“In two weeks’ time, we will cut corporation tax to 20 per cent, one of the lowest rates of any major economy in the world.”
The Mayors of London and Manchester will also get new skills powers to help plug regionalised skills gaps.
And this April national insurance payments for employing under 21s will be abolished. From April 2016 NI will be abolished for employing a young apprentice. In addition, the government plans to review the business rates tax.
As previously announced, the chancellor confirmed he would relax the rules on pensions.
Five million more pensioners will be able to cash in their annuity. “For many an annuity is the right product, but for some it makes sense to access their annuity now.
“From next year the punitive tax charge of at least 55 per cent that can prevent people selling their annuity will be abolished. Tax will be applied only at the marginal rate. And we’ll consult to ensure pensioners get the right guidance and advice.”
However, there are growing concerns about the unintended consequences of this new freedom such as pensioners running out of money or being conned out of their savings.
Unison general secretary Dave Prentis said: “This vote-winning ploy from the Chancellor risks creating another mis-selling pensions disaster, just like the one in the late 1980s It’s a populist proposal that is in danger of becoming a pensions nightmare for many.”