The latest Government decisions means

There may have been a U-turn on the 45% tax rate for highest earners, but much of the impact of the mini budget on 23 September remains. Things are still unfolding, but one thing is sure, the latest decisions, announcements and fall-outs will have an effect on the labour market. What does this mean for employers and what will the consequences be for hiring, as well as business growth? Will it really “get Britain working again?”

The basic principle
Before getting lost in the hyperbole of news headlines, it’s worth remembering the basic economic principles behind the mini budget. The fundamental premise was to stimulate economic growth by spurring on business leaders. The helicopter view of this is that business growth leads to greater wealth for all. It makes some sense on paper, without considering the human implications in a cost of living crisis climate.

Alarmist news matters
However, there was no way of releasing the mini budget’s details without a sense of alarm, not least because by being a Budget in all but name, it didn’t include the financial figures to help people make sense of it. There was nothing ‘mini’ about it, in reality. Indeed, when it was announced, it represented the biggest package of tax cuts for 50 years. But these are – in headlines at least – sure to make the rich richer and the poor poorer in the shorter term. There’s no way of escaping the bad optics of this when larger numbers will be choosing between heating or eating this winter.

And fundamentally, this matters, because this sense of panic amongst the wider population and individual householders isn’t just felt within the confines of individual living rooms. It spilt out, immediately, onto the trading floors. Suddenly, the very foundations of macroeconomics felt unstable at best.

There are many different opinion pieces about the impact of the mini budget, but what does it specifically mean for the world of work and the jobs market?

The basics and what they mean
Let’s start by looking at the remaining non-U-turned elements of the 23rd Sept announcement and what impact we could expect them to have on employers and hiring decisions.

• Corporation Tax increase cancelled

Corporation Tax was going to increase to 24% from 19%. This is now cancelled. This should – from a macroeconomic viewpoint – encourage greater investment in the UK. Greater investment should ultimately mean more jobs. It takes time to happen though and in the short term is unlikely to have notable impact in terms of hiring.

• National Insurance Contribution rates cut

With the return to previous standard rates of NICs from 6 November 2022, and the scrapping on the due-to-be-introduced Health and Social Care Levy, employers will – in theory – find it cheaper to employ staff. This should enable employers to hire as needed, knowing staff will effectively ‘cost less’.

• IR35 swings back to being the workers’ responsibility

There is a planned repeal of IR35 Off-Payroll Working Rules due to apply from 6 April 2023 which means it will once again be the responsibility of the individual to determine their employment status and thus take charge of their tax and NICs liabilities.

This is welcome news for employers, recruiters, and no doubt a lot of individuals whose livelihoods it impacted. It reduces the admin burden and goes back to shifting the tax and NICs liabilities onto the individual rather than the employer. Contracting may, therefore, increase.

Exercising care to prevent fraud in the supply chain will still be required, but it will be less cumbersome. In the short term, employers will need to consider how to manage their responsibilities to workers on projects that straddle the change.

• Changes to industrial action legislation

This came into force on 21st July 2022 and revokes regulation 7 of the Conduct of Employment Agencies and Employment Businesses Regulations 2003. Regulation 7 prevented an employment business from supplying temporary workers to cover striking workers. It is highly controversial, but the idea is that this should make it easier for workers to get to work during times of industrial dispute.

• The reality for employees

Employers cannot ignore the microeconomic situation for their employees. Household finances matter to employers for multiple reasons including how it spurs individuals on to seek better-paying employment or where personal stress affects work productivity. A few examples are that there are 1.8 million households due to come off fixed rate mortgages next year who will now face much higher mortgage repayments due to interest rate rises. Furthermore, it’s safe to anticipate big interest rate jumps starting from the next announcement on 3 November.

The additional tax back in the pocket of individuals with the 1% drop in income tax from April will not be felt in reality, where cost of living is higher.

It is also estimated that 40% of Universal Credit claimants are in work and it is used to top up income. So even if you decide to give your employees a bonus to help with cost of living rises, this may well be counter productive as it could have a direct impact on their benefits.

There are more elements to the mini budget, as well as notable ripples out to wider issues, but this list highlights some of the key changes that impact the jobs market. It’s perhaps worth also giving a nod to reducing the burden of stamp duty as this – again, in theory – should make it easier for people to move to where work is which, when combined with the proposed Investment Zones, could be interesting. The challenge here though is supply more than demand.

It’s also important to pay attention to the impact of interest rate increases, even though obviously not part of the mini budget. Generally speaking, and from history, we know that when interest rates rise, especially fast, recession follows. During recessions, employer confidence wanes and there is less hiring activity.

The impact on employers
Neil Carberry, CEO of the Recruitment & Employment Confederation said:

“Putting business at the heart of delivering prosperity for the UK is always the right call, and the Chancellor’s focus on this will have landed well with employers all over the country. Reducing the counter-productive rise in employer National Insurance – a tax on creating jobs and paying people more, that falls heavily on the sectors most affected by the pandemic – is wise. And ditching the botched changes to IR35 – the rules on how temporary contractors are paid – is also a huge help. These have been big REC campaigns, and we welcome today’s announcements. The changes will provide many businesses with much needed relief, when taken into the balance with short-term support on energy bills.”

In theory, the changes should go some way to get the UK workforce properly active again, contributing to the greater good of all. However, it’s not without issue. Those on the ground in recruitment, rather than taking a helicopter macroeconomic view, know that it’s not just enough to encourage anyone to an interview and into a job. It needs to be the right person, motivated, and with the right skills.

Furthermore, with things like long-term sickness posing such a problem for employers, we cannot ignore the impact that less money for the already struggling NHS will have. Nothing happens in isolation.

In practice, right now, it means that employers continue to need support managing turbulence and change, specifically in terms of how this affects the workers and the skills they can access. For the longer term, we all need clearer workforce planning.

If you’d like to know more about how First Executive can help, give us a call.