Yesterday’s budget unveiled a raft of new changes to boost the economy. Whilst with any budget, there is always concern with both winners and losers, changes such as corporation tax reductions and lower National Insurance for small businesses will certainly help businesses. Article by Zee Hussain, Partner at Colemans-ctts and Head of the Employment Department.
The rise in the national living age should also do wonders for the many workers on low incomes. Further confidence can be taken from the British Chambers of Commerce, known as the voice of British business, who have backed the chancellor stating 'George Osborne has delivered a genius balance of politics and economics that provides stimulus for the economy while continuing the tough task of eliminating the deficit’.
National Living wage (NLW)
From next April, the NLW will rise to £7.20 and then to £9 an hour by 2020. While this is a promising move, the impact on both the employee and the employer may be rather different. While there will be a happy boost in earnings for 2.7 million workers, costs will increase notably for some businesses. To their credit, to offset this, the government has advised there will be reductions to Corporation Tax and an increase in the Employment Allowance. Employees will be sure to welcome this increase, however, businesses, particularly small businesses, are advised to watch this space closely – the big question lies with whether they can truly afford this increase.
The NLW applies to workers over 25 and coincides with the announcement of benefits being cut to those already in work. These cuts, however, will not apply to Maternity pay and disability benefits. Working age benefits (including tax credits and local housing benefits) are to be frozen for four years meaning that there may potentially be an influx of younger workers. It may be the case that there will be an increase of employment of those under 25, working at a lower rate. The concern here is that the government are taking a big gamble on wage increases that the industry might not be able to deliver.
This will increase by a further £1000 to £3000. Businesses will have their employer National Insurance bill cut by another £1,000 from April 2016, as the Employment Allowance rises from £2000 to £3000. This means, next year, businesses will be able to employ 4 people full time on the National Living Wage and pay no National Insurance at all. As a result of the allowance, on a positive note, 90,000 employers will see their employer NIC’s liability reduced to zero. This has been introduced to try and offset the increase in wages, however, the question arises if this will really go far enough. The Employment Allowance will only allow employers (who are currently paying minimum wage) to offset the cost of the Living Wage increases up to 2,000 hours. After that, the business will be a net loser unless it is profitable enough to benefit from the reduction in the rate of corporation tax.
Three million new apprenticeships
These will be created by 2020 and funded by a levy on larger employers. This suggests that firms that are committed to training will be able to get back more than they put in. The definition of large is usually taken to mean more than 250 employees. In practice, this may be an issue for large businesses who are not using apprentices but will still be taxed. Should businesses who are already expending time, money and resources on apprentices also be taxed?