Budgeting concept. Hands, pen and calculator.

Steve Herbert takes an objective look at some of the key announcements for HR experts from today’s Autumn Budget announcement.

Yesterday The Chancellor of the Exchequer, Jeremy Hunt, delivered his much-trailed 2023 Autumn Statement, and there are a number of standout announcements for Human Resources (HR) experts to consider.  Below are my initial thoughts on some of the more eye-catching proposals.

Background

Before we come to the announcements made, it is necessary to remember the background of this particular fiscal event.

2023 has been a more politically stable year for the UK than 2022, and indeed the nation’s finances were also less volatile than in the wake of that infamous “mini-budget” last year.  Yet the national economy has been (effectively) flatlining in recent months, and households and businesses are still over-exposed to the double-whammy of high inflation and soaring interest rates, coupled with a 70-year high in the national tax burden.

Politically this matters to the government, not least because the next General Election is no more than 14 months away, and because the Conservatives are a distant second in most opinion polling at present.  The Chancellor’s Autumn Statement therefore provides a useful opportunity to highlight any progress made in recent months and to make some taxation changes that could make a tangible difference to the finances of the electorate, businesses, and the national economy.

This mission is certainly helped by the latest ONS data indicating that CPI inflation figure is now at 4.6% (compared to the peak of 11.1%).  The Chancellor has also found a little headroom in his own 5-year projected figures allowing him some latitude to reduce the tax take.  For these reasons, the Chancellor was able to claim that the economy is now “back on track” in his speech.

So what key announcements were there for HR professionals to consider?

National Living Wage

The Chancellor announced in October that the annual uplift of the (compulsory) National Living Wage (NLW) rates would bring that rate to “at least” £11.00 per hour.  That would have represented a 5% increase (now above the CPI inflation rate) to the NLW, which represented a very real cost challenge to many employers – and particularly those in marginal sectors.

So many employers might be rather shocked that the Government has now accepted the Low Pay Commission’s recommendation that the NLW will increase by far more than expected – almost 10% – from April next year.  The new NLW rate will be £11.44 per hour (£1.02 per hour higher than for the current year).  That will add around £1,800 to the pay of a full-time worker on the NLW, and will improve the pay of the nearly 3 million employees subject to this minimum earnings level.

Aside from the obvious cost implications of providing this new salary level to those subject to the NLW requirements, employers should also consider how this will impact employees on higher grades who would usually expect pay differentials to be maintained.  Overall, this could prove to be a very expensive decision for many employers and sectors, albeit some of the extra costs may be offset by other measures announced today.

Another practical consideration is to ensure that the use of any existing salary sacrifice schemes does not, inadvertently, result in the employee’s salary dropping below the much-higher new base level from April next year.  I would encourage employers to look into this issue well before the April increase date.

National Insurance rate changes

The Chancellor also today announced a significant reduction in employee National Insurance (NI) contributions.  The basic employee NI rate will decrease by a full 2% to 10% from the 6th January 2024.

The Chancellor estimates that this measure will save the typical employee £450 per year.

This measure will be welcomed by working households.  It remains to be seen what judgement that wider financial markets will make on this major decision, but as long as Hunt has “shown his workings” (something his predecessor failed to do in that mini-budget of 2022) then this tax cut is likely to land relatively well.

On a practical level, a reduction in National Insurance will slightly alter (decrease) the savings made by employees using Salary Sacrifice schemes, and employers may want to consider how (or if) they communicate such changes.

Pension Changes

The final significant change for HR professionals is likely to be the new proposals around workplace pension savings.

Before we look at today’s proposal today, it is worth highlighting that new rules around Auto-Enrolment have already been legislated for, and new options for pension scheme investments were announced by The Chancellor earlier this year.  The timetable for either change is not yet entirely clear.  It is therefore likely that any such changes will not be implemented until the start of the next parliamentary term, and may therefore be subject to change depending on the makeup of the next government.

Yet today the Chancellor added to the pensions “in” tray by announcing a consultation around a new pension “pot for life”.

The idea is to allow employees to nominate one pension scheme to which their employer will be required to pay contributions.  In this way, the employee’s pension will follow him/her as they move from one job to another, with that one pension fund growing throughout the individual’s career.

This might sound like a sensible and pragmatic solution to the realities of employees regularly moving jobs, and avoiding the problem of “lost” pension savings too.  Yet it may well overlook the sophistication of so much of the UK group pensions market.  In reality, many good employers seek to provide an enhanced pension offering to attract and retain employees, and it is unlikely that a “one size fits all” solution will better many of these existing arrangements and services.

It should also be noted that employers prefer to run one scheme to contain costs and reduce administration too – and any “pot for life” solution would need to also avoid such issues.

Additionally, there are already valid concerns being raised that such an approach would lead to higher-paid and more wealthy savers being targeted with the very best offerings, whilst the lower-paid (and often more transitory) workers would perhaps have far fewer “good” options available to them.

So, this consultation may only be the start of a long process of recommendations, refinements, legislation, and eventual requirements for employers.  It is therefore unlikely that any significant changes arising from this consultant will take place before the next General Election.

Steve Herbert is Wellbeing & Benefits Director at Partners&