George Osborne said that today’s Budget was made for building a resilient economy – a Budget designed for makers, doers and savers.
The BBC’s Robert Peston said it felt like a ‘very Tory Budget.’
Overall, the GDP forecast is expected to grow by 2.7% in 2014 and 2.3% next year, then 2.6% in 2016 and 2017, culminating with 2.5% growth in 2018.
Read on for our analysis of the measure most relevant to the HR function, plus our collection of the general response and HR-specific analysis from different sources.
You can keep up with comments on the budget by following hashtag #Budget2014 on Twitter.
Employment rate
- The UK now has a higher employment rate than the USA – for the first time in 35 years, according to Osborne.
Public sector
- The Government will continue its policy of pay restraint.
Taxation
- The threshold for the 40p rate of income tax will rise from £41,450 to £41,865 next month and by a further 1% to £42,285 in 2015
- Personal tax allowance will rise to £10,000 in April 2014 and £10,500 from April 2015
- A tax exemption will be introduced in October 2014 for amounts of up to £500 paid by employers for medical treatments for employees
- National Insurance payments from employers will be abolished for workers aged under 21
- The collection of class 2 National Insurance contributions will form part of the self-assessment process
Savings
- Cash and shares Isas will be merged into a single New Isa from July 1st, that will come with an annual tax-free savings limit of £15,000
- The 10p tax rate for savers will be abolished
Pensions
- Tax restrictions on pensioners’ access to pension pots will be removed, which will end the requirement to buy annuities
- The taxable part of pension pots taken as cash on retirement will now be charged at the normal income tax rate, rather than 55%
- Maximum lump sum payment to rise to £30,000
- New Pensioner Bond, which will pay “market-leading rates,” will be available from January to over-65s – rates will vary from 2.8% for a one-year bond to 4% for a three-year bond
- The government will introduce laws allowing those with defined contribution pens to draw down from them after age 55 from April 2015, subject to their marginal rate of income tax
Education and young people
- Building on the Apprenticeship Grants for Employers (AGE) scheme, the government will provide an extra £85m in both 2014-2015 and 2015-2016 for over 100,000 grants to employers
- The government will investigate options to raise the number of people in postgraduate education and will present ideas at Autumn Statement 2014
Employee ownership
- The government will introduce a package of measures to support the employee ownership sector
Childcare
- Tax relief for childcare, to be phased in from Autumn 2015, will be increased to £2,000 per child from £1,200
Remuneration & pay
- The government will undertake a call for evidence on remuneration practices in the 21st century to inform future changes
Fuel duty
- The fuel data rise, planned for September, will not happen
Analysis
Mark Beatson, Chief Economist, CIPD: “Business will only reap the full economic benefits of investment in plant and machinery if they also invest in the training, people development and organisational change to ensure new technology is used effectively. While there was an extension of the current arrangements to increase the number of Apprenticeships, we didn’t see a sufficient level of ambition in raising the UK’s skills capabilities. We will continue to press the case for a fundamental review of UK skills policy, together with a new focus on the workplace, the nature of jobs for the future, and how skills are being utilised."
Pensions expert Ros Altmann said that people would now “flock to take money out of pensions,” which will create a sizeable tax pot for the government.
According to Daily Mail political editor James Chapman, the tax break on savings means that those with an annual income of £15.5k or less will pay no tax at all.
Robin Hames, Head of Marketing, Capital Employee Benefits: “From this April anyone earning less that £10,000 will no longer be eligible for auto-enrolment and, assuming the Government’s practice of linking auto-enrolment to the tax threshold continues, from next year no one earning less that £10,500 will qualify. This means that many thousands more employees who would previously would have been automatically entered into a workplace pension, will not be.”
Matthew Phillips, Managing Director, Broadstone: "We believe the changes to Defined Contribution Pensions are significant. Through auto-enrolment, most people will be placed into a DC pension scheme. However, the chancellor has today announced that these will become more flexible. Individuals will not have to purchase an annuity and you will consequently be able to draw out income when you want to the amount you want. Accordingly, short and medium term savings could be carried out through ISAs and long term retirement saving into what is arguably looking like a ‘big ISA with tax breaks,’ your defined contribution scheme. This is a much simpler set of affairs for everyone going forward.
Andrew Hunter, co-founder, Adzuna: "Osborne may be pleased that income inequality is falling, but the ongoing North-South divide is still crippling the labour market. Competition for jobs in the North remains intense, with more than more than 27 people competing for each vacancy in areas such as Wirral and Salford. Osborne paid lip-service to this problem, but jobseekers in these areas may well be disappointed.”
Ian Hammond, Managing Director, Rowanmoor Group: "The potential impact of the reduction in the minimum income requirement to £12,000 per annum is likely to result in many more people taking their whole pension fund early, with the consequence of an increased reliance on state benefits. Whilst these reforms appear be the bedrock of a new, more flexible pension system in the UK it will take some time for the industry to fully digest their impact.”
David Rudick, VP International Markets, Indeed.com: "The huge boost to apprenticeships must be supported by the careers advice that is delivered in schools. Schools and employers must work more closely together to demystify the job search process, and ensure that careers advisors are better equipped to offer the appropriate training and careers advice schemes. Providing the appropriate direction to school leavers will help the next generation decide what career is right for them, not mistaking the first available job for the right job.”
Peter Searle, CEO, Adecco Group UK & Ireland: "Today’s ONS statistics show there are still around one in five (19.8%) jobless 16-24 year olds in the UK, demonstrating that the Government still needs to invest to ensure much-needed apprenticeships opportunities are made available for all young people and the education system equips people with core employability skills to ensure people can develop to their full potential and successfully enter the jobs market.”
Ronan Dunne, CEO, O2: said “It’s positive to see the value of a young workforce recognised by the Chancellor today, as the fact remains that there are still over 900,000 young people out of work. Young people possess the digital skills that are the fuel of the growing economy and a greater number of businesses need to give them a chance. That’s why this week we’re launching a new space in the heart of London with the commitment to help young people capitalise on their digital skills and get practical career advice and support.”
Terry Scuoler, CEO of manufacturers’ association EEF, said: “The chancellor said this would be a budget for manufacturers and he has delivered on his word. The government clearly recognises the need to make the competitiveness of the UK a priority. We argued strongly for the need to reduce the rising cost of energy faced by many companies, and he’s acted on that.”
Dave Prentis, leader of union Unison: "The Chancellor has run out of time and ideas. His claims that people are feeling the benefits of his austerity agenda are wearing thin. The public are not fooled, they know that the gap between the rich and poor is dividing society. Unison members will see through the Chancellor's Budget for what it means – at least another four years of pain for little gain."
William Akerman, Managing Director, MyKindaCrowd: “It is encouraging that the government has pledged to support more apprenticeships and introduce university apprenticeships. The key to creating our future workforce lies in giving young people the opportunity to learn practical skills as well as gaining experience relevant to the work-place. Bringing together businesses and education establishments to provide opportunities for all young people will help to ensure there is a strong talent pipeline.”
Our analysis of last year's Budget can be found here: Budget 2013 – what does it mean for HR?
