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21 March 2013

Budget 2013 – what’s in it for HR?

Employment Allowance aims to encourage hiring

The 2013 budget was short on big-ticket announcements for employers as the chancellor unveiled a range of “relatively small steps” to encourage jobs growth.

There was one exception in the form of £2,000 Employment Allowance for small and medium employers. This will slash £2,000 off the employer national insurance bill of every company in a bid to encourage hiring.

“It’s a tax off jobs,” the chancellor said of the new measure, which will become available in April 2014.

“For the person who’s set up their own business, and is thinking about taking on their first employee – a huge barrier will be removed. They can hire someone on £22,000, or four people on the minimum wage, and pay no jobs tax.”

Mark Beatson, the CIPD’s chief economist, welcomed the move to incentivise hiring but he added: “There’s a question about whether it’s the most effective way compared to the alternatives, such as spending the money on more active labour market measures. For example encouraging apprenticeships or more work programme funding.”

In another step to support employers, corporation tax will come down from 21 per cent to 20 per cent in 2015. George Osborne said: “I want us to send a message to anyone who wants to invest here, to create jobs here, that Britain is open for business.”

The rise in the personal tax allowance to £10,000 and the introduction of the flat rate pension, will now come in earlier than originally planned.

The personal tax allowance will rise to £10,000 next year rather than in 2015 and the single tier pension, worth £144 a week, will come into force in 2016.

Commenting on the flat rate pension, Osborne said: “Of course, if there’s no longer the old state second pension, there’s no longer anything to contract out of. For employers that means paying the same employer national insurance as those without defined benefit schemes.”

Private sector employers can adjust their pension benefits to accommodate the extra cost, he said, while public sector employers will have to absorb the burden.

The chancellor will hope that his Budget measures will build on the revised employment figures from the Office for Budget Responsibility.

Compared to this time last year, the OBR now predicts 600,000 more jobs in 2013, while 60,000 fewer people will be claiming unemployment benefit.

Delivering a budget for an “aspiration nation”, the chancellor said that the private sector had “triumphed” by more than offsetting public sector job losses.

“For every one job lost in the public sector in the last year, six jobs have been created in the private sector,” he said.

Official figures released this morning revealed that there are now 29.73 million people in employment in the UK, up 590,000 from a year earlier.

The chancellor reconfirmed the launch of tax free childcare for working families, under which many employed parents will become eligible for 20 per cent off the first £6,000 of childcare costs for each child.

An extension of the 1 per cent cap on public sector pay rises was also announced last week, although the Budget statement has revealed today that military personnel would now be exempt from the cap.

Another development for employers was the doubling of the tax-free season ticket loan threshold to £10,000.

Beatson said: “On their own the chancellor’s measures are relatively small steps but you can read it as part of his big agenda, which is delivering on his statement that the ‘UK is open for business’. And you can see a lot of things in this Budget as small steps towards that.”

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