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Steve Herbert: What does today’s Budget mean for Employee Benefits?

Our popular columnist Steve Herbert, Head of Benefits Strategy, Howden Employee Benefits & Wellbeing, considers how today’s budget will impact on UK employers and  in particular how it will impact on Employee Benefits

It’s unlikely that there has ever been a Chancellor of the Exchequer with a higher public profile than Rishi Sunak.  Since his unexpected appointment to office in February 2020, Sunak has become something of a fixture on our TV screens as the nation and its government grappled with the uncharted dual challenges of the COVID-19 pandemic and the UKs departure from the European Union.

During this period Sunak has delivered three formal reviews of the nation’s financial position, with the last such event being the Budget statement in March this year.  That announcement aimed to meet some of the pandemic costs through a series of taxation threshold freezes.

Yet the scale of the government’s pandemic spending and the challenges still ahead are significant, and it was therefore always likely that the income generated from the March ’21 Budget would require further taxation augmentation.

And in September the government announced a new tax to be known as The Health and Social Care Levy (which starts life as an increase to National Insurance from April 2022).  Although not announced in a traditional Budget setting, the increase to National Insurance is one of the biggest single tax generating measures of modern times.  Indeed Sky News outlined in this video (from September) that the national tax burden is now near record levels in the UK.

The October 2021 Budget

Against this background the Chancellor today took to the dispatch box to deliver his second Budget of 2021.

For the full Budget documents please click here.

So what, if anything, does this Budget announcement mean for HR and employer-sponsored employee benefits provision?  Here are the main issues:

National Minimum Wage/ National Living Wage

Heavily trailed in the run up to the Budget, the Chancellor announced significant – above inflation – increases to the National Minimum Wage/ National Living Wage levels from April 2022.

The new rates are as follows:

  • Apprentice Rate:  Increases from £4.30 per hour to £4.81 per hour
  • National Minimum Wage for those under 18:  Increases from £4.62 per hour to £4.81 per hour
  • National Minimum Wage for those aged 18–20:  Increases from £6.56 per hour to £6.83 per hour
  • National Minimum Wage for those aged 21–22:  Increases from £8.36 per hour to £9.18 per hour
  • National Living Wage for those aged 23+:  Increases from £8.91 per hour to £9.50 per hour

Obviously these new rates will increase the cost of any employee benefits related directly to salary levels.

Employers should also be aware that any employee salary sacrifice arrangement (or combination of separate Salary Sacrifice arrangements) must not reduce an employee’s salary below the above minimum rates.

Howden Employee Benefits & Wellbeing would therefore urge employers to ensure that this rule is adhered to following the increases in April 2022.

Public Sector Pay

The Chancellor also announced an end to the Public Sector Pay freeze.

It is not yet clear whether the pay rises to be given to Public Sector employees in 2022 will result in a real-terms increase, and this will be decided early in 2022.

It should however be noted that these increases will drive up the cost of any employee benefits directly linked to salary levels.

Pensions

The Chancellor announced plans to develop a solution to the widely reported ‘net pay anomaly’, which currently sees some low earners lose out on tax relief if they pay pension contributions through a ‘Net Pay’ arrangement, whereas those who pay through a ‘relief at source’ arrangement benefit from tax relief.  The system reportedly costs low earners up to £150m a year, The new system is planned to take effect from 2025/26.  Draft proposals will be published in 2022, to be followed by a new Finance bill.

Training and upskilling

In his Conservative Party Conference speech earlier this year the Prime Minister set out his plans to make the United Kingdom a “high skill, high wage” economy, and that mantra has been repeated often over the last six weeks.

So it is no surprise that the Chancellor announced an additional £3.8bn in skills spending.  This includes plans around the new vocational qualifications known as T-levels, as well as another £550m for investment in adult skills and education.  And the Kickstart scheme (please see our post from earlier this year) looks set to continue too.

It is hoped that all the above will improve the supply of qualified and/or experienced candidates for the UK employment market.

Universal Credit taper

Yet this Budget may well be remembered for Sunak’s final announcement, a significant reduction in the taper applied to Universal Credit (UC) payments.

It has long been recognised that a pay rise given to an employee (such as that suggested by the Minimum Living Wage increase next year) will also result in a significant reduction in UC payments.  And millions of low-paid employees and households also receive Universal Credit payments.

The Chancellor has recognised this paradox, and announced an 8% reduction in the taper from 63p for every £1 earned, to 55p for every £1 earned.  This will go a long way towards offsetting the end of the temporary UC £20 per week payment this month, and indeed some of the other financial pressures of the moment (please see this post).

Employers should however be aware that this will only help the lowest paid employees, with most middle earners still facing the other significant inflation concerns of the moment.  And many workers may still need some practical support in the form of company-sponsored Financial Education and guidance.

Overall the October 2021 Budget appears to leave company-sponsored employee benefits provision largely unchanged.  This will be welcomed by employers, but does suggest that further changes in 2022 remain possible.

We will of course comment further on all the above as more detail becomes available in the days and weeks ahead.

About the author

Steve is Head of Benefits Strategy, Howden Employee Benefits & Wellbeing, and is an award-winning thought leader on Pensions, Employee Benefits, and Human Resources issues. A regular contributor to Employer News, he is occasionally accused of making Employee Benefits interesting!