Budget 2008: key changes from April 2008
The key announcements in the Budget that will be of interest to HR professionals are detailed in our review of Alistair Darling's first Budget speech as chancellor.
On this page:
The economy
Public sector
Key announcements
Environment
Education
Families
Business
Productivity
Employment
Reactions to the 2008 Budget
Box 1: At a glance - key employment-related changes for 2008/09
Table 1: National insurance contributions from 6 April 2008
Table 2: Income tax rates from 6 April 2008
Table 3: The Budget - key personal finance changes.
Key points
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Last year we reported that Gordon Brown's 11th Budget contained some real surprises. This year, in Alistair Darling's first Budget, the opposite was true.
While our blog entry on Budget day may have taken a slightly wry look at the delivery, and content, of Darling's first Budget speech, there is no getting away from the fact that this was a speech with little to say.
Key announcements on spending amounted to relatively small amounts, and many of the changes due to come in from this April (income tax, national insurance, corporation tax) had previously been announced.
Nonetheless, we guide you through the main changes that are important to HR professionals and are due to come into effect from April 2008.
THE ECONOMY
Perhaps to forewarn people of the outlook for the UK economy, Darling noted that "problems in one part of the world can quickly spread to another".
However, economic growth of 3% in 2007 was right in the middle of the 2.75% to 3.25% forecast his predecessor made in the 2007 Budget. But that is where the link with the previous forecasts ends. Brown had hoped for growth of between 2.5% and 3% this year and next, figures that Darling subsequently revised down to 1.75% to 2.25% for 2008 and 2.25% to 2.75% for 2009.
The infamous "golden rule" - whereby the government's current budget should be in surplus over the course of the whole economic cycle - will be met, according to the chancellor. Although coming in at the forecast minus £8 billion in 2007/08, the Budget is expected to return to surplus in 2010.
The government's other key fiscal rule, on debt, will also be met, said the chancellor. But the detail in the Budget report (external website) shows that if he attains his forecasts, he'll meet the rule by the skin of his teeth. The rule states that net debt will remain below 40% of gross domestic product (GDP) - his forecast puts it at 39.8% in 2010/11.
The Comprehensive Spending Review (external website) in October 2007 had already contained most of the detail on public spending, which the chancellor reaffirmed would grow by 2.2% in the coming three years.
The current above-target consumer prices index (CPI) inflation (2.5% in February 2008) is, according to the chancellor, attributable to "higher oil and food prices feed[ing] through into domestic inflation", and does not pose a problem in the longer-term as he forecasts that inflation will return to its reaffirmed 2% target in 2009 "and remain on target thereafter".
Many economic commentators highlighted slower economic growth and an increase in borrowing as two of the key messages from the Budget speech. Economists at investment bank Lehman Brothers said the net result of this year’s Budget is an increase in tax "to the tune of £2.5 billion over the next three years".
The extent of borrowing required was noted by several others, including Royal Bank of Scotland, which warned that: "If the outlook is worse than the chancellor expects, even these higher forecasts for public borrowing could be at risk."
Similarly, Oxford Economics warns that "the risks look skewed towards borrowing overshooting the budget targets, and remaining at uncomfortably high levels into the medium term".
Remarks from investment bank HSBC echo many of the comments from economists: "Perhaps the biggest take away from this Budget is that it serves as a reminder of how unstable and vulnerable the UK economy, and sentiment towards it, is at the moment."
PUBLIC SECTOR
Taking up where his predecessor left off, Darling was keen to press the need for restraint on public sector pay, saying: "The discipline we have shown on pay in the public sector will support the Bank of England in maintaining low and stable inflation." The Budget report again noted the "risk of second-round effects of temporarily higher inflation feeding through to higher average earnings growth", and the importance of public sector pay settlements being consistent with the 2% CPI inflation target. Darling also reiterated that multi-year pay settlements would be explored.
The Budget reaffirmed the government's programme of public sector reform, with the Public Value Programme continuing to "look at all major areas of public spending to identify where there is scope to improve value for money".
KEY ANNOUNCEMENTS
A key feature of this year's Budget speech was the environmental stance it took, with the chancellor announcing his plan to introduce carbon budgets from 2009, along with a host of measures - and taxes - designed to benefit the environment. The one that grabbed the most headlines was the carrier-bag tax that will be introduced if retailers do not take voluntary action to reduce their use.
Education
On education, the chancellor announced a £200 million package to bring forward to 2011 the target of at least 30% of pupils in each school achieving five A* to C grade GCSEs including English and maths. An additional £10 million over the next five years will be used to create the "Enthuse Science" fund to promote science in schools. Measures to improve skills - and ultimately employment - among the working-age population were also announced.
Families
For families and children, the chancellor announced a number of measures to help "eradicate child poverty in Britain". These include: increasing child benefit for the first child to £20 per week from April 2009, a year ahead of planned (in the meantime it increases to £18.80 a week from April 2008); and an increase to the child element of child tax credit by £50 a year above inflation. A further £125 million will be spent over the next three years to help "those who need it most and where the challenges are the hardest".
Business
For business, the chancellor confirmed that the main rate of corporation tax will reduce from 30% to 28% from April this year. He also announced a series of initiatives to help small and medium-sized enterprises. The plans include additional funds for the small-firms loan guarantee and changes to the enterprise investment scheme and enterprise management incentive scheme. However, there was no back-down on his much-reported plans to tax non-domiciled workers, with the annual charge per person confirmed at £30,000.
An announcement on VAT levels for employment agencies may force employers to reconsider how they hire staff. As reported in Personnel Today (external website), from April 2009 employment agencies will have to pay VAT on the whole cost of placing a temporary worker, rather than just on the commission element of their supplies.
Productivity
Alongside the Budget, the Treasury also published Enterprise: unlocking the UK's talent (external website), which focuses on entrepreneurial culture, business growth and skills. Read more about the survey in our blog.
Employment
The chancellor championed the state of the labour market, with "employment reaching a record high of almost 29.5 million ... and the claimant count reached a 32-year low". The increase in the number of lone parents, people over 50 and those with a health condition or disability in employment has also increased, but "moving towards the government’s long-term aspiration of an employment rate equivalent to 80% of the working age population will require more people in these groups to move into sustained employment," said the Budget report.
Improving the skills of adults is key to achieving this, and £60 million of additional funding was announced to improve adult skills. Further initiatives to get more people into work include introducing work capability assessments for all incapacity benefit claimants.
REACTIONS TO THE 2008 BUDGET
Some key economic and employment organisations have described the chancellor's speech as "a Budget of missed opportunities". We present the views from a number of these organisations, with links to the statements published on their respective websites. For a more light-hearted look at how the press reacted to Darling's speech, see our blog.
The impact of changes to the government's tax regime was criticised by the BCC. David Frost, director general of the BCC, said: "The pre-Budget Report last October brought in a series of changes that complicated the tax system, increased taxes and made the UK a less attractive place to come and do business. Unfortunately the chancellor has not repealed the bulk of these measures and the business community will still feel that the government has used them as an easy target for the Treasury." However, he welcomed the measures announced to help small and medium-sized companies.
The voice of British retailers also pin-pointed the negative impact on business from the measures included in the Budget. "The chancellor is using claims of tackling social and environmental ills as an excuse to take yet more tax from hard-pressed businesses and consumers," said Stephen Robertson, director general of the BRC.
Richard Lambert, director general of the CBI, described the announcements affecting business as "a credible first step on the road" to the government winning "back its enterprise credentials". However, the CBI noted that many of the tax changes affecting businesses from this April, most of which were announced in the previous Budget and pre-Budget report, will "put a further squeeze on firms at this already turbulent economic time". The employers’ body did welcome the additional funding for adult skills, and public sector reform.
The professional organisation welcomed the government's commitment to increasing skill levels among the working population. Gerwyn Davies, CIPD public policy adviser, said: "While we endorse the additional resources allocated to welfare reform and skills that build on existing initiatives, the CIPD welcomes the breathing space that today's announcement offers to our members, who have had to contend with streams of employment legislation and initiatives in recent years - albeit many of them well received and positive for the workplace."
Manufacturing organisation the EEF describes the extension to the small-firms loan guarantee scheme as "a welcome sign of government flexibility in supporting small and growing businesses struggling to attract finance". However, it added that "the lack of any announcement on the future direction of business tax strategy failed to impress".
The IoD described itself as "relieved" by the "low key" nature of the Budget. While welcoming public sector reform, the IoD wants the government to go one step further: "We need to see radical reform which makes competition and the consumer king." Miles Templeman, director general of the IoD, said: "The tax regime still needs to be simplified and made more business-friendly. The new enterprise agenda is taking us in the right direction but, as ever, everything depends on delivery."
The IFS noted that Darling's sums may be under pressure from the slowing economy: "There is clearly a danger that tax revenues will turn out to be even weaker - for example if the slowdown in the economy is deeper or more persistent than the Treasury hopes." If this is the case, "Mr Darling or his successor may have to inflict more pain than he did [in his 12 March 2008 Budget]," said the IFS.
Unsurprisingly, the PCS picked up on Darling’s comments on public sector pay, responding that the government was "creating unnecessary conflict by driving down the pay of civil and public servants" and called on the government to "recognise that their own workforce weren't the causes of inflation but the victims of inflation". Mark Serwotka, PCS general secretary, said: "The chancellor billed this Budget as one built on fairness, yet continues to hide behind the discredited argument that public sector pay is fuelling inflation as an excuse to drive down the wages of the people who keep this country running." He also said that "further so-called efficiency savings would irrevocably damage services and lead to further privatisation".
TUC general secretary Brendan Barber felt that the Budget should have included more measures to tackle child poverty, with a suggestion that more money could be made available through the non-domicile tax and closing loopholes for big companies.
This article was written by Sheila Attwood, editor, Pay and Benefits Bulletin.
Box 1: The 2008 Budget at a glance - key employment-related changes for 2008/09 In this box: NATIONAL INSURANCE CONTRIBUTIONS National insurance contribution (NIC) (see table 1) rates and thresholds for 2008/09 are as follows:
XpertHR statutory rates: National insurance XpertHR’s statutory rates service provides detailed coverage of post-Budget national insurance rates. Changes to the income tax regime, which take effect from 6 April 2008, are as follows:
See table 2 and table 3 for details of income tax rates and revised allowances. XpertHR statutory rates: Income tax XpertHR’s statutory rates service provides detailed coverage of post-Budget income tax rates. Changes to the company-car tax regime were presented as environmental measures, although none are due to take effect this year. These include:
The child tax credit (CTC) is paid on top of child benefit to the main carer. For 2008/09, the child element of the child tax credit will increase by £25 above earnings indexation, to £2,085. From 2009/10, the child element of the child tax credit will increase by £50 above earnings indexation. The disabled child element of the CTC is uprated to £2,540 a year; the severely disabled child element rises to £1,020; and the family element remains frozen at £545. XpertHR statutory rates: Child tax credit XpertHR's statutory rates service provides detailed coverage of the post-Budget changes to the child tax credit. The working tax credit (WTC) had replaced both the working families' and disabled person's tax credits. In conjunction with the national minimum wage, it is designed to tackle poverty among those in employment. From 6 April 2008, the basic element of the WTC will rise from £1,730 to £1,800 a year, with the couple and lone parent element rising from £1,700 to £1,770. The maximum eligible childcare costs that can be reclaimed under the working tax credit remain at £175 per week for families with one child, and £300 per week for those with two or more children. The maximum percentage of eligible childcare costs that can be claimed remains unchanged at 80% in 2008/09. The chancellor reiterated the government's acceptance of the national minimum wage increases proposed by the Low Pay Commission. The new rates, effective from 1 October 2008, are as follows:
XpertHR statutory rates: National minimum wage XpertHR's statutory rates service provides full details of the new NMW rates. XpertHR reference manual: School fees and childcare provision XpertHR's employment law reference manual provides full details of the post-Budget changes to childcare tax exemptions. |
Table 1: National insurance contributions from 6 April 20081 |
|
Weekly earnings |
National insurance rate for employees |
Up to £105 |
Nil |
£105.01 to £770 |
11% |
Over £770 |
1% |
Weekly earnings |
National insurance rate for employers |
Up to £105 |
Nil |
Over £105 |
12.8% |
1. National insurance contributions to
be paid on all taxable benefits in kind, excluding childcare. |
|
Table 2: Income tax rates from 6 April 2008 |
|
Tax rate |
Bands of taxable income |
Starting rate (10%) |
Abolished |
Basic rate (20%) |
£0 to £36,000 |
Higher rate (40%) |
More than £36,000 |
Source: HM Treasury. |
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Table 3: The Budget - key personal finance changes |
|
Income tax allowances – tax year from 6 April 2008 |
£pa |
Personal allowance (age under 65) |
5,435 |
Personal allowance (age 65 to 74) |
9,030 |
Personal allowance (age 75 and over) |
9,180 |
Blind person’s allowance |
1,800 |
Married couple’s allowance1 (aged less than 75 and born before 6 April 1935) |
6,535 |
Married couple’s allowance (age 75 and over) |
6,625 |
Income limit for age-related allowances |
21,800 |
National insurance - effective from 6 April 2008 |
£pw |
Primary threshold |
105 |
Secondary threshold |
105 |
Lower earnings limit |
90 |
Upper earnings limit |
770 |
1. Tax relief for the married couple’s
allowance is given at the rate of 10%. |
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