REC’s response to Spring Budget

This morning, Jeremy Hunt unveiled his first Budget.  It’s actually the first one for 17 months – hard to believe, given how many financial statements we’ve had in the last six alone! Although not the last financial intervention from Hunt, it’s likely to be the last opportunity for this government to make any real policy impact before an Election in 2024. Perhaps that’s why this Budget felt more substantial. Building on the January speech he did at Bloomberg, the Chancellor focused the Budget on the four E’s of his “industrial strategy” – Enterprise, Employment, Education and Everywhere.

Most of the rabbits had already been pre-briefed to media so there weren’t many left to pull on the day, but we’ve summed up the key points below.

Full Capital Expensing

Focusing on Enterprise, Hunt announced full capital expensing on eligible plant and machinery investments made from 1 April 2023. This will be in place for three years, but the government intends to make it permanent “when fiscal conditions allow.” In recent years, policy has done little to create an environment that promotes business investment. Today’s announcement goes some way to address that, but encouraging more business investment must also extend to people – the staff who keep businesses running – through training, learning and development.

In addition, as we move towards a Net Zero economy, government should go even further – ensuring that eligible plant and machinery extends to cover energy efficient investments. In January, we asked a pool of REC members what they thought would be the biggest barriers to creating green jobs in the UK. More than six in 10 employers (65%) believe the lack of government support will be the biggest barrier. This is the Chancellor’s opportunity to address that.  

Tax avoidance

It was good to hear the Chancellor announce his intention to clamp down on promoters of tax avoidance via a consultation on the introduction of a new criminal offence, but what we really need to see is umbrella company regulation. If HMRC is focusing on tax avoidance, umbrella companies must be part of that.  We will, of course, feed into the consultation but we’ll also be pushing HMRC and the Department for Business and Trade (DBT) to ensure that umbrella company regulation is part of that.

Another obvious omission was around off payroll (IR35) working rules. If the government wants to clamp down on tax avoidance, then making it easier to comply with certain aspects of legislation must be part of that. Despite several reviews, the legislation is still overly complex and doesn’t place sufficient impetus on the end-client to provide their assessment and take responsibility for it. Businesses want to be compliant with IR35 but ambiguity over employment status for tax purposes increases the risk of falling foul of the rules and being fined. An overhaul of the legislation is required. In the meantime, one straightforward area to address is changing offsetting rules which would provide a route for our members to more easily claim back monies if there has been an overpayment of tax or where there has been incorrect application of the off payroll rules. We’re expecting a Tax Administration and Maintenance Day in Parliament in the next month or so, and we’ll continue to push HMRC to introduce changes ahead of that.

Childcare

One of Hunt’s biggest rabbits was extra spending and support on childcare. This was one of our key Budget asks so the increase in spending, changes to universal credit, extra support for childcare providers, and support for working families, particularly women, is extremely welcome. While it’s good to see this the reform won’t come into effect until April 2024, with the full 30 hours of free childcare support for every child over 9 months not coming until September 2025. This then doesn’t address the challenges people are facing today.

In addition, while announcements on wrap-around care for primary school children is welcome, the challenge is finding people to actually provide that care. We already know the demand for primary teachers is 39.5% higher now than it was pre-pandemic, while demand for childminders is just over 90% higher according to our labour market tracker data. Similarly, more funding for childcare providers – another REC ask – is obvious welcome, but more detail about the new hourly rate is needed.  

Immigration

We know the Migration Advisory Committee (MAC) is reviewing the Shortage Occupation List (SOL), which we’ll be feeding into before the deadline on 26 May, but it’s encouraging to see government recognise the need to review the SOL more regularly. We called for this in our Manifesto for Growth and it will enabling our immigration system to more rapidly respond to labour market demands. Today, we saw this in action with the addition of some construction and hospitality occupations added to the SOL, expected before summer.

Addressing economic inactivity

While the Chancellor’s focus on labour shortages and growth was welcome, a comprehensive workforce strategy is lacking. Aside from some encouraging progress on devolution, there was very little on skills policy. The focus was on mid-life MOTs and the introduction of “returnerships” – accelerated apprenticeships for the over 50s. There are a couple of key issues with these proposals. As mentioned in our Budget submission, we know that most over 50s do not want to go into job centres. That's not where they find jobs - especially if they have worked previously – so this policy intervention is likely to be limited. Government needs support from REC members to get these policies right for the long-term.

Similarly, while ‘returnership’ take up might be limited, if government can run these shorter, accelerated apprenticeships successfully, then it’ll provide more impetus for government to introduce much-needed flexibility to the wider Apprenticeship Levy. We’ll be following this one closely!

There were also some carrot and stick announcements, with extra support for those with long-term illness and disabilities, including abolishing the work capability assessment. While some of these interventions are welcome, others like introducing benefit sanctions are unhelpful and will fail to tackle economic inactivity in the long-term.

All in all, the focus of the Budget was right, particularly the renewed emphasis on the Industrial Strategy but we still need some proper thinking on workforce planning. Some of today’s policies will only boost growth if we have the right people, with the right skills to do the jobs in the first place. It’s a good start, but more work is needed particularly on issues like enforcement, skills, and economic inactivity.