Emergency Budget – Key Points For Employers

Employment Alert 

The Chancellor announced the coalition government’s first budget yesterday, designed to deal with the crisis in public finances. So what does the budget mean for employers? We set out some key measures below:
 

• The Chancellor stated that the government will consult on “whether” to phase out the default retirement age of 65. This contrasts with the statement in the policy programme announced on 20 May that the default retirement age “will” be phased out.

• In addition, the government will accelerate the state pension age to 66, which will partly pay for the new link between the basic state pension and earnings.

• From April 2011, the threshold at which employers start to pay national insurance will rise by £21 per week above indexation, providing some relief to employers.

• Also, some good news for entrepreneurs thinking about setting up new businesses outside London and the South East -  they will be exempt from £5,000 of national insurance payments for each of the first ten employees. 

• Not such good news for public sector workers earning more than £21,000 who will see a two-year pay freeze. In addition, the government will conduct a review of public sector pay to ensure that the highest earners are not paid more than 20 times the salaries of those on the lowest pay. 

• The announcement that benefits will be up-rated in line with consumer prices rather than retail prices (saving the government £6bn a year) is likely to mean that maternity, paternity and adoption pay and sick pay will rise at a slower rate in coming years than has previously been the case.  

• Corporation tax will be cut to 24 per cent over the next four years and small employers tax will be cut to 20 per cent, measures that are likely to assist many employers as they are trying to recover from the downturn.

• The government has also announced that it remains committed to a review of the IR35 rules which affect some owner-managed businesses, with the aim of simplifying the rules and preventing tax avoidance.

The Budget has been widely commented upon as the toughest package of cuts and tax rises in a generation. However at least for employers, it is not as severe as some feared it would be.

Losing track of Employment Legislation?

To hear about what the budget means for employers and to familiarise yourself with recent updates in Employment Law please join us for a complimentary breakfast seminar on Thursday 15 July, 8.15am - 9.30am, at Mishcon de Reya, Summit House, 12 Red Lion Square, London WC1R 4QD. 

For more details, or if you would like to attend, please RSVP to Jenny Stebbing on events@mishcon.com.