Autumn Budget 2021: How it impacts people and HR

Chancellor Rishi Sunak announced the Autumn Budget at 12:30pm BST on 27th October 2021. Having already released some details around spending plans for health, transport and education in the press, Sunak filled in some of the gaps and set out his plan for a “new economy” post-COVID.

It’s important to recognise that what’s been announced impacts your people and their lives and consequently it directly affects your business. 

With that in mind, we’ve summarised and analysed some of the key points from the announcement and how they impact you, your business and your people from a HR, payroll and recruitment perspective.

Key points from the announcement that impact businesses and their people:

  • An increase in the National Living Wage from £8.91 per hour to £9.50, which will take affect in April 2022
  • The OBR expect unemployment to peak at 5.2%
  • A total of around £1.2bn of funding for adult skills and training, including the £560m “Multiply” scheme

 

Update 28/10/21 – more detail/points of note

  • Income tax rates remain frozen for the next four tax years – the Personal Allowance tax-free income for 2022-23 remains at £12,570 and the Higher Rate Threshold is at £50,270
  • Company car and van benefit charges – appropriate percentages for vehicles first registered before 6 April 2020 are frozen at 2020-21 levels, with the exception of the 0kg/km rate, which increases to 2%. Appropriate percentages for vehicles registered on or after 6 April 2020 increase by 1%.

Focus: National Living Wage

  • From April 2022, workers over 23 will earn £9.50 per hour
  • This represents an increase for full-time workers of £1,074 before tax
  • The increase is 6.6% – more than twice the current 3.1% rise in cost of living

Additional detail on the wage increase in the table below.

Previous rate Rate from April 2022 Percentage increase
23+ (NLW) £8.91 £9.50 6.6%
21-22 year olds £8.36 £9.18 9.8%
18-20 year olds £6.56 £6.83 4.1%
16-17 year olds £4.62 £4.81 4.1%
Apprentice Rate £4.30 £4.81 11.9%

 

Analysis

  • This is a significant increase for those who are currently receiving NLW
  • Increases in NLW are creating a “squeeze point” at junior to middle management level
  • Salary benchmarking is a useful exercise not only to manage the gap between NLW earners and middle management, but as part of a wider pay and rewards strategy
  • Pay and rewards is just one element that people consider when leaving or joining a company
  • Further clarification is required/expected on statutory pay – which we would expect to see increase in-line with the wage increase

 

People

For those that are currently receiving National Living Wage, this is a significant increase, and one of the biggest for some time. 

Employers are going to have to consider how this will impact them. Whilst we’ve seen continued increases to the living wage over the last few years, we are starting to see a squeeze point, particularly at Junior to Middle Management level. It’s all relative. And continually increasing salaries at the bottom end of the salary scale, while not appraising salaries at the junior and middle level may mean that – in what is an increasingly competitive market – talent is lost. 

There is a considerable rise in inflation too. There’s an argument to say that the increase that is being received will be swallowed up quite considerably by cost of living. We need to be aware of this, and draw attention back to the increasingly small gap between living wage earners and junior to middle management. The benchmarking of salaries should not only be  the singular point of focus when considering interventions. Rather, they should be assessed alongside the wider pay and rewards strategy, whilst also saying relative to the competition and wider market. 

Another consideration is that in recent CIPD polls, pay and rewards was one small element that people consider when leaving a job or looking for a new job. There’s actually a wider employer proposition that people are considering. While the living wage is increasing, it’s not increasing that much faster than the speed of inflation. Businesses will have to increase the living wage. But this still means we need to consider other things, such as: recruitment, retention, attraction, hybrid working, rewards modelling and how all these reflect and affect the employer brand.

 

Payroll

The increased cost of £8.91 to £9.50 doesn’t seem like much at an individual employee level, but when viewed through a more holistic lens, it begins to make a bigger impact across the employee base. What will be the impact of the National Insurance increase? Will it cost more to hire? 

It will be interesting to see if there will be further clarification on increases to statutory pay – if NLW is increasing, then this will increase the Lower Earnings Limit (LEL), which will result in an increase in statutory sick pay, maternity pay, etc.

Focus: Unemployment

  • The OBR expects unemployment to peak at 5.2%, meaning “over two million fewer people out of work than previously feared” 

Analysis

  • The job market continues to be buoyant and entry level jobs are being filled
  • Skilled jobs are where the gaps are 
  • Anyone who already has the capacity to increase salaries and pay will have done
  • We need to look beyond salaries to solve employment challenges

The job market is currently buoyant, and we’re not really seeing many vacancies across the sectors we serve at entry level going unfilled. Employers are having to go out there and increasingly look at different ways to recruit talent for skilled jobs, and salary is only part of that. Many businesses were already committed to increasing rates and salaries anyway, and those that haven’t driven it up will likely suffer the most from the NLW increase. Anyone that could have afforded to commit to that rise to attract at a time where talent is scarce may have already pushed salaries up, or brought in attraction bonuses. There is a middle piece where businesses need to attract skilled workers – and that won’t happen just by bumping up salaries. 

As we’ve mentioned, employers need to be looking at things like employer brand, benchmarking, rewards modelling, hybrid working and upskilling their workforce in order to attract and retain their talent.

Focus: funding for skills and training

  • £550m will be provided for adult skills in England
  • There will be a further £170m for apprenticeships and training
  • £560m “Multiply” scheme announced to improve basic numeracy skills

Analysis

  • Funding seems to be in the vein of previous work on apprenticeships
  • This is potentially limited for those who don’t take that path way, and leans heavily towards younger people
  • We should also focus on upskilling older and existing workers
  • The “Multiply” scheme misses people in the middle who are already in the job market and want/need to upskill

The government is trying to continue the work they have done in apprenticeships. This is great for some skills, but potentially limited in scope to those who can’t or don’t take that pathway. The incentives offer a considerable amount to encourage people to do apprenticeships at younger ages. While the apprenticeships initiatives have largely been successful, there is a big gap in adult skills. As such, we are seeing an impact on the jobs market. Older workers still have skills gaps, and businesses need to be supporting and investing in the skills of older generations to get the most out of the talent that’s available. 

You can hire in skills and experience that you don’t have within the business, and that’s one way in which you can look at your skills gap at the business level. However, with the changing landscape of the workplace, and as part of the drive to retain people, the emphasis needs to shift to personal development. The government will be providing more funding for skills training – which will help businesses in upskilling their whole workforce and associated personal development programmes. 

While organisations have been lobbying the government for change, the scope of the Apprenticeship Levy has to date been quite limited. For example, if you were going to use it for soft skills training, the likelihood is that once spent the first time around to bring everyone up to a level you’re not then going to redo that piece of upskilling. The only place you can then look to spend this funding is in other areas, which are not usually that relevant. 

For the smaller businesses who haven’t been able to qualify, they have either had to find their own funding or secure some from other third party sources. This other £550m will help narrow this gap in workforce development. 

The Multiply Scheme essentially misses the people in the middle. It gets people to enter the job market, but this is where investment stops. 

As we’ve mentioned, employers need to be looking at things like employer brand, benchmarking, rewards modelling, hybrid working and upskilling their workforce in order to attract and retain their talent.

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