Mini-Budget - Employment Implications

We summarise below some of its key employment and tax implications.

The Government describes the mini-budget (or 'Growth Plan') as making "growth the Government's central economic mission". It goes on to say that "sustainable growth will lead to higher wages, greater opportunities and provide sustainable funding for public services".

Since the mini-budget was announced, the Government has had to work hard to defend its rationale, in a fast-changing situation that is developing daily.

National Insurance

Tax cuts such as the reversal of the 1.25% rise in National Insurance Contributions (NICs) will affect both employers and employees. The change applies to earnings paid from 6 November 2022 and affects Class 1, 1A, 1B and 4 contributions. The Government has stated that approximately 920,000 businesses will see an average tax cut of £9,600 in 2023-24 as a result of this change. In respect of the impact on employees, the average saving will be £330 next year and £135 this year. Employees need to be earning more than £12,570 to benefit.  

Off-Payroll Working Rules

The Government has also confirmed it intends to repeal the off-payroll working rules from 6 April 2023, both in relation to the public and private sectors. No consultation preceded this announcement which has taken commentators by surprise.

The off-payroll working rules were introduced because of perceived non-compliance with the pre-existing IR35 rules. The IR35 legislation was introduced to crack down on a perceived method of tax avoidance where individuals would seek to avoid paying employee income tax and NICs by supplying their services through an intermediary and paying themselves in dividends. That IR35 legislation will remain in place, so it would be incorrect to state that the removal of the off-payroll working rules will create an unfettered ability to provide workers' services through intermediaries.

Cost of Living Crisis

This week has seen an unprecedented response to the mini-budget, including a warning from the IMF and the Bank of England stepping in to buy government bonds in a bid to stabilise the economy. We are living through a cost of living crisis, with inflation rising sharply.

The Living Wage Foundation has increased the voluntary 'real living wage' by over 10% to £10.90 per hour in the UK and £11.95 in London. Some 11,000 employers elect to pay their staff this voluntary wage, which is higher than the Government-set National Living Wage, and which is designed to reflect the true cost of living.

For more information or advice, please contact Bob Fahy in our Employment Law team on 020 7665 0818, or complete the form below.