How did the Spring Statement affect the employment sector?

The Spring Statement that is fast becoming known as the “is that it?” statement certainly could have been worse. But, the tone was set right at the start as Chancellor Rishi Sunak reminded us of the grim backdrop of the war in Ukraine in amongst a slower-than-planned recovery post-pandemic. While many said not enough was done to help struggling families, businesses too look to be baring an ongoing struggle. 

National Insurance increases “must remain”

Many will not have been surprised at Sunak’s news that the rises in National Insurance (NI) must remain, however, he did throw a lifeline to those on a lower income by raising the threshold in line with income tax.

Previously, anyone earning £9,570 would be exempt from paying NI, but from July 2022 that threshold will rise by £3,000 to £12,570 - the same as the 20% tax bracket. Sunak said this was a “£6bn personal cut for 30 million people across the UK.” Broken down, that’s worth more than £330 a year for employees.

Employers take a hit too

The flip to that is, for employers, it is about to cost more - as both employees and employers will be charged the additional 1.5 percentage points. This was criticised by the leader of the SNP after Sunak’s speech as being “a tax on jobs” as businesses that are still weathering the storm of Covid closures, will no doubt see this as a further blow. What’s more, as the cost of living puts a squeeze on people’s disposable incomes, there will no doubt be tough times ahead for many businesses, and more needs to be done to keep people in work.

However, Sunak offered an olive branch at the end of his speech, saying he’d like to do something for small businesses by introducing an increase to the Employment Allowance by £5,000, which will come into effect from two weeks’ time.

Businesses will need to prepare for the rises in NI. Sadly, this time of year is usually when employers might be considering hiring new staff or investing in their growth plans. Some business owners may be forced to scale back plans to hire new people or make pay rises, and others may be forced to make pay cuts.

Looking ahead

Even though it seems like another “jam tomorrow” promise, the Chancellor has announced a cut to basic rate income tax from its currently level of 20% to 19% from 2024. While this will offer a lifeline for many, it’s a long way off when changes need to be made to help people and businesses run today and continue to run into the future.

SMEs should review their remuneration packages in light of these proposed changes and look for ways to minimise the effects of the proposed cost increases. We anticipate that self-employed workers will be affected by the proposed changes to NICs. However, the Government has indicated that change is on the way and they should be preparing for additional increases in the near future to bring them in line with employees.

If you have any employment-related legal issues, contact Downs Solicitors to see how we can help.


David Seals

David Seals

Partner

Tel: +44 (0) 1306 502218

Office: Dorking

Email: d.seals@downslaw.co.uk