Coalition agreement: what key proposals mean for employers

With a coalition Government finally in place, the Conservative-Liberal Democrat key proposals have been outlined. We take a look at some of the main policies and what they mean for employers and the workplace.

On this page:
Economic recovery
Immigration
Jobs/welfare reform
Tax
Default retirement age
Opinion: Nigel Meager, director, IES
Likely changes in employment policy.

Economic recovery

  • £6 billion worth of extra cuts to non-front-line services within 2010-11.
  • Acceleration of plans to cut the £163 billion deficit in the UK.
  • Emergency Budget to be held within 50 days of the final Coalition Agreement.
  • Banks to face a new levy and clamp down on "unacceptable" bonuses. An independent commission to decide how to break banks up.

Business reaction: The CIPD's chief economic adviser John Philpott said: "How to combine the critically important task of cutting the fiscal deficit with meeting the equally important challenge of restoring full employment will provide Cameron and his coalition partners with their sternest test." Kevin Green, chief executive of the Recruitment and Employment Confederation, added: "Reducing the deficit is [an] immediate priority, but the Government must focus on reforming public services rather than short-term cuts."

Immigration

  • Cap on UK immigration, with Lib Dem plans for an amnesty on illegal immigration dumped.
 
 

Reducing the deficit is [an] immediate priority, but the Government must focus on reforming public services rather than short-term cuts.

John Philpott,
chief economic adviser,
CIPD

 

Business reaction: The cap could leave employers struggling to find skills, experts said. David Yeandle, head of employment policy at manufacturers' group the EEF, said: "A cap is very inflexible and doesn't take into account the differences that take place in the economy during the year. We could end up in a situation where companies need people, but they have all been taken." Jim Hillage, director of research at the Institute for Employment Studies, warned an artificial flow of migrants into the UK could take place before the cap came in.

Jobs/welfare reform

  • Replace all existing welfare reform programmes with a single welfare-to-work programme, expected to include people on incapacity benefits (details still to be outlined).
  • Unemployed people claiming benefits to be referred to the new welfare-to-work programme immediately. Those under 25 to be referred within six months.
  • Realign contracts with welfare-to-work providers to improve results in getting people back into employment.

Business reaction: Employers' groups urged the incoming Government to make reducing unemployment and creating jobs a priority. The TUC warned it would be a "huge mistake" for the new Government to cut support for the unemployed, particularly the Future Jobs Fund, a Labour policy that aimed to create 170,000 additional jobs for the young long-term unemployed. The union feared that 18- to 24-year-olds would not get the former Government's guarantee of a job, work experience or training after six months out of work.

Tax

  • The Tory plan to scrap the national insurance (NI) rise for lowest-paid workers, dubbed "Labour's tax on jobs", to be watered down. Employers will not have to pay the extra contributions, but the rise for employees will go ahead. Individuals would instead benefit from the income tax changes, the coalition Government said.
  • The income tax threshold to be raised in the long-term to £10,000, giving workers an extra £700 a year.
  • Child tax credits for higher earners to be reduced.

Business reaction: Business leaders backed the proposals to scrap the employers' NI contributions increase. However, the Chartered Institute of Taxation warned VAT may yet have to rise, which could outweigh any benefits staff may get from the tax threshold increase.

Default retirement age (DRA)

  • The DRA to be scrapped in phases.
  • A review to set a date for the raising of the state pension age to 66, but this rise would not happen before 2016 for men and 2020 for women.

Business reaction: The CIPD advocated removing the DRA. It said many organisations have already successfully ditched it to help them retain older workers. The Employers Forum on Age agreed mandatory retirement should be abolished, with employers given six months to prepare for the change. The CBI warned axing the DRA would impede firms' succession planning.

Opinion: Nigel Meager, director, IES

"Despite the early signs of economic recovery, it is clear that the new Government inherits a very fragile labour market. Unemployment stands at 2.5 million, economic inactivity at more than eight million, and there are more than one million part-time workers unable to find full-time work.

"We will also begin to see public spending cuts feed into the labour market this year. It is difficult to escape the conclusion that unemployment is likely to remain high for some time without sustained and substantial economic growth. The recovery is by no means securely established and it is hoped that the new administration's decisions on the timing of deficit reduction will take account of the risk of further damage to a labour market that remains weak.

"Nearly 18% of young people are unemployed, and almost one-third of the unemployed are now long-term unemployed. Continuing to support these groups back into work will be critical in preventing the legacy of long-term worklessness in many communities following previous recessions. Any early dismantling of the existing measures targeted at young people and the long-term unemployed would be premature, on the basis of these figures."

Nigel Meager is director of the Institute for Employment Studies.

Likely changes in employment policy

The full and final Coalition Agreement, expected to be published this week, is likely to also cover the following:

Agency Workers' Regulations

  • The regulations, which give temps the same rights as permanent employees after just 12 weeks in a job, may be repealed. Employers would welcome clarification on the definition of "pay" when comparing agency workers with permanent staff.

Equality Act and flexible working

  • The positive action in recruitment and mandatory pay audit clauses may be removed from the forthcoming Equality Act.
  • The right to request flexible working could be extended to parents with kids aged 18 or under, or to all employees.
  • Parents may be allowed to share parental leave between them and simultaneously.

Public sector pay and pensions

  • A cap on the biggest public sector pensions above £50,000 could be imposed, but a new independent commission will need to recommend this.
  • A one-year pay freeze in 2011 (not for the lowest-paid workers).
  • Online publication of public sector job titles of all employees and the salaries and expenses of senior officials.

Skills

  • Some 400,000 work pairing, apprenticeship, college and training places could be created over two years, together with a Community Learning Fund to help older workers develop new skills.

Employment law

  • A "one in, one out" principle for employment law to reduce unnecessary red tape.