The Chancellor made his annual Spring Statement speech yesterday where he set out the Government’s tax plan to support the UK economy, businesses, and families in both the short and the medium term.

Key measures the Chancellor announced as part of the plan include:

  • An increase to the National Insurance Primary Threshold for Class 1 NICs and the Lower Profits Limit for Class 4 NICs from 6‌‌‌ ‌‌July‌‌‌ ‌‌2022, aligning it with the equivalent income tax personal allowance which is set at £12,570 per annum
  • From April 2022, self-employed individuals with profits between the Small Profits Threshold (SPT) and the Lower Profit Limit will not pay Class 2 NICs, while allowing individuals to be able to continue to build National Insurance credits
  • The Employment Allowance will be increased by £1,000 from 6‌‌‌ ‌‌April 2022 to £5,000, which will benefit around 495,000 businesses
  • An immediate reduction in duty on diesel and petrol from‌‌‌ ‌‌6‌‌‌‌pm on 23‌‌‌ ‌‌March 2022, by 5‌‌‌ ‌‌pence per litre, for 12 months

 

How significant is the increase of NI thresholds?

The Chancellor has stated the Employee National Insurance (“NI”) starting threshold will rise to £12,570 from July 2022 with no employee NI paid below that sum.

“This helps employees but there was no mention on the employer threshold,” says Partner and Head of Employment Taxes at Azets, David Hedges.

CEO and co-founder of FreeAgent, Roan Lavery, said: “I think businesses may be pleasantly surprised with the Chancellor’s Spring Statement- especially as few people were expecting to see significant tax changes being made in it. Most of the talk during the build up had been about fuel prices and the rising cost of living, so the announcements about increasing the Employment Allowance and raising the National Insurance threshold will be very welcome for SMEs.”

However, the TUC has expressed concerns. TUC General Secretary, Frances O’Grady, said:

“In the midst of the biggest wages and bills crisis in living memory, Rishi Sunak’s Spring Statement has failed families who need help now.”

“We did not get the urgent help with soaring bills that families need. And the rise in the national insurance threshold will mostly benefit better-off households.”

“The Spring Statement small print shows that pay packets are now expected to fall in value by £11 a week this year. After 12 years of Tory government, Britain needs a pay rise. But this Chancellor has no plan to get wages rising and give working people long-term financial security.

O’Grady also responded to the Chancellor’s failure to appropriately penalise P&O parent company (DP World) following the sacking of 800 workers with immediate effect and no consultation. He said:

“Not only is the Chancellor not standing up for struggling families, he is not standing up to bad bosses. He should have taken all public contracts off DP World, including freeports, and clawed back all funding they received during the pandemic until they reinstate the workers. Bad bosses should know they are not welcome to do business in the UK.”

 

How will the announcements affect employment?

Commenting on the employment implications of the announcements made, Head of Employment at DWF, Joanne Frew, says: “It is clear from the Spring Statement that the government recognises that the rising cost of living is a real concern to the UK population. With the headline of the government press release reading ‘Chancellor announces tax cuts to support families with cost of living’, the government is seeking to allay those fears and provide reassurance that help is on its way.”

“The Chancellor has announced tax cuts for nearly 30 million UK workers through the rise in National Insurance thresholds, saving the typical employee over £330 in the year from July.”

“It is important however to remember that National Insurance contributions will rise by 1.25% from April this year under the Health and Social Care levy.  The Chancellor has also set out plans to cut the basic rate of income tax from 20p to 19p from 2024, the first cut to the basic rate in 16 years,” she adds.

“Although the Spring Statement will bring much needed welcome relief to many, it is questionable what assistance it gives to those employers who are struggling to recruit and retain the best talent.  With such a competitive market many employers have been struggling with labour supply which inevitably has led to pay increases in certain sectors,” says Frew.

 

The Apprenticeship Levy

Rishi Sunak told the House of Commons: “We lag international peers in adult technical skills. Just 18 per cent of 25-64 hold vocational qualifications, a third lower than the OECD average.”

“And UK employers spend just half the European average on training their employees,” he adds.

Sunak stated that, subsequently, they will consider whether the current tax system including the operation of the apprenticeship levy is doing enough to incentivise businesses to invest on the right kinds of training.

Addressing calls for reform, the spring statement document states: The government recognises that employers have frustrations with the way that these apprenticeship levy funds can be spent within the apprenticeships system and is delivering a suite of improvements to address these.

“As part of this, the government is looking at how more flexible apprenticeship training models can be supported, while ensuring apprenticeships remain a high-quality training route for employees of all ages and stages of their career.”

Whilst the usually much anticipated spring statement becoming somewhat lost amongst the buzz around Russia’s war on Ukraine, it nonetheless outlines tangible changes that HR professionals should be aware of.