Chancellor of the Exchequer Kwasi Kwarteng delivered the new Government’s mini-budget last week, announcing a series of tax cuts and reforms aimed at encouraging economic growth and tackling the cost of living crisis.
A number of the proposals made by the Chancellor will have financial and practical implications for employers and some of the key highlights are as follows:
The most significant announcement made by the Chancellor was the reduction in the basic rate of income tax. From April 2023, the rate will be cut from 20p to 19p per pound.
The higher rate tax band of 45%, paid on earnings above £150,000 will also be abolished and replaced by a single higher rate band of 40% on earnings over £50,720 from April 2023.
The recent rise in National Insurance contributions, which has seen both employers and employees pay an additional 1.25p per pound since April this year, will also be reversed from 6 November 2022.
The Chancellor also announced that recent amendments made to the IR35 off payroll working rules (introduced in 2017 for the public sector and 2021 for the private sector) will be repealed from 6 April 2023. The previous changes put the burden of determining the IR35 status of workers and contractors onto the business hiring them. The repeal of these rules mean that it will once again be the responsibility of the contractor or worker to assess their own employment status and tax obligations.
The Retained EU Law (Revocation and Reform) Bill has the potential to have a significant impact on domestic employment law. After Brexit, the UK’s transition out of the EU was eased by retaining a snap shot of applicable EU law in force in the UK on 31 December 2020, known as retained EU law. The new Bill will automatically repeal retained EU law by the end of December 2023, unless specific regulations are introduced to retain it. Currently, employees enjoy an abundance of rights that derive from EU law, including provisions relating to paid annual holiday, and the 48-hour working week.
Significant other employment legislation that could be affected includes TUPE, the Agency Worker Regulations and the Part-Time and Fixed-Term Worker Regulations.
It is unclear yet whether domestic legislation will be introduced to replace these provisions or whether they will lapse next December.
If they are retained, the opportunity may still be taken to make amendments to the law in its current form.
What is clear however, is that this Bill is an early warning that major changes to UK employment law could be inbound, and it is therefore crucial that that the Government provides further detailed information as soon as possible, to ensure businesses can plan for the future.
Following a series of high-profile strikes in recent months from businesses such as Royal Mail and Network Rail, the Chancellor has announced that legislation will be introduced to tackle “militant trade unions” from shutting down key infrastructure as a result of strikes. It is not known yet exactly what this legislation will look like, but the new laws are likely to require unions to put pay offers to a member vote, and to ensure that strikes will only be able to be called once any talks have genuinely broken down.
The Chancellor also indicated that the legislation will provide that, in the event of strikes, a minimum service level will be introduced to ensure that key services continue to operate.
In one of the more controversial announcements made by the Chancellor, the current cap on bankers’ bonuses will be scrapped. Currently, a banker’s bonus is limited to twice the amount of their salary, but this will become unlimited.
The introduction of the cap in 2008, which was designed to reduce risk-taking by bankers, resulted in higher salaries being paid to compensate for the reduction in bonuses.
It is unclear how employers will approach the removal of the cap, with businesses now at risk of paying significant bonuses if they cannot find a way to reintroduce the “reduced salary, increased bonus” model that was common prior to the cap’s introduction.
If you are an employer and looking for advice relating to what the Chancellor’s mini-budget might mean for you and your business, please feel free to get in touch with our Employment team.
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