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CIPD responds to the implications of the Budget for jobs, public sector pay, pensions and the default retirement age
Dr John Philpott, chief economic adviser at the Chartered Institute of Personnel and Development (CIPD), comments as follows on today's emergency Budget:
"The Chancellor has introduced what must surely rank as the most astonishing UK budget statement in modern times. Mr Osborne's combination of £32 billion additional spending cuts by 2014-15 and an £8 billion net tax hike amounts to an unprecedented fiscal squeeze, including an extremely severe clampdown on the welfare bill. Yet both he and the independent Office for Budget Responsibility (OBR) reckon there is a greater than evens chance that the government will meet what the Chancellor calls its 'fiscal mandate' with barely any serious short-term impact on economic growth and employment.
"Although the OBR has downgraded its pre-Budget economic growth forecasts in the light of Mr Osborne's austerity measures, and become a bit more pessimistic about jobs, the suggested outlook for the economy is nonetheless remarkably rosy, with investment and net exports more than making up for weak household spending and a big drop in public spending. The Chancellor could hardly have asked for more had he and his Treasury team stuck with tradition and come up with the forecast themselves.
"One suspects, however, that the forecast outlook will prove too good to be true. The fiscal squeeze both at home and across the eurozone will curb the demand for the goods and services that ultimately drives business investment and exports. Economic growth will slow by far more than today's budget suggests and, rather than peaking at 8% this year, unemployment will continue to rise toward 3 million (10%) by the time Mr Osborne's measures take full effect. This will add to public borrowing and debt, not reduce it. The 2010 Emergency Budget is not the beginning of the end of the UK's post-recession economic difficulty but the start of a period of painfully slow growth, falling living standards, and prolonged high unemployment."
Additionally, Dr Philpott comments on the public sector management challenge ahead:
"Significant job cuts were inevitable whoever won the election. However, there is little evidence that any of the parties gave serious thought to the enormous management challenges associated with delivering their manifesto commitments through a workforce demoralised by redundancies, pay restraint and pensions reform.
"We've warned consistently that the public sector may be numerically overmanaged, it is qualitatively undermanaged. To get the best from a workforce cowed by the harsh winds of fiscal restraint will require a step change in management capability in the public sector. Those who lose their jobs are only part of the story - how the 'survivors' are managed will determine if the story has a happy ending for the UK's public services."
Charles Cotton, CIPD reward adviser, also comments on the two-year public sector pay freeze, plans to raise the state retirement age and to consult on the default retirement age, and the newly-formed Hutton Commission into public sector pensions:
Public sector pay:
"In the short term, while a pay freeze will stop the public deficit getting any worse, it will do little to help the deficit get any better. For that to happen we need to review what public sector services we need, what delivery structures are most appropriate, what skills, behaviours, attitudes and performance we need from public sector workers and how we should reward and recognise these. At the moment, however, serious joined-up thinking about how to reform pay and benefits to get the best from public sector workers is being drowned out by the incessant, monotone noise of the deficit reduction vuvuzelas.
"The government also needs to be wary of the dangers of a prolonged squeeze on public sector pay. Keeping the lid on pay for year after year would cut costs at the expense of severe public sector recruitment and retention difficulties. This would harm the quality of public service provision as public sector employers would have to make do with lower quality staff, while history suggests that periods of tight pay restraint are subsequently followed by periods of significant public sector pay inflation when earnings are raised to competitive rates."
Plans to raise the state retirement age:
"It is no great surprise that the Government is planning to accelerate the rise in the state retirement age. However, it is a shame that they have swerved a clear decision on the default retirement age, and have chosen instead to hold yet another consultation on its abolition. They should make their consultation swift, and move quickly to bring to an end the absurdity of enforced retirement. In tough times like these, it is all the more crazy to force people out of the labour market and into the pension claimant ranks. People who want and are able to keep working can do more to reduce the deficit than people forced out of work and into unwilling retirement."
Hutton Commission into public sector pensions
"Plans to ask public sector employees to contribute more now towards their future pensions are nothing more than a necessary short-term down payment on more substantial reform of public sector pensions. We welcome this first step towards reform, but expect more substantial recommendations for the medium and long term from John Hutton when he reports back on his findings.
"Public sector pensions today manage the uniquely poor combination of being extremely costly, while still somehow failing, given their cost, to be used as effectively as they should to attract, retain and motivate people in the public sector. As well as addressing the costs, public sector employers need to find better ways of communicating to employees the benefits of public sector pensions."
Meanwhile the CBI said...
Reacting to the Chancellor’s Budget speech, Richard Lambert, CBI Director-General, said: "The Chancellor has achieved his twin objectives of setting out a credible plan for the public finances and producing a convincing growth strategy for the longer-term.
"Mr Osborne is close to achieving his 80:20 ratio of spending cuts to tax increases, which is so important to sustaining long-term growth. He has struck a sensible balance on Capital Gains Tax, limiting the impact of the increase on entrepreneurial activity and long-term savers.
"The 5-year route map for Corporation Tax provides much-needed consistency and certainty. Taken together with proposals on foreign profits and intellectual property, these will help prevent and could even reverse the flow of companies overseas.
"There was clear recognition in the Budget of the role that business needs to play in getting the economy back into shape, and generating the jobs and wealth needed to sustain economic recovery.
"The Chancellor has sensibly taken measures to secure public support by offering extra help to cushion the impact on low-income families.
"This Budget is the UK's first important step on the long journey back to economic health. The autumn spending review, and the re-engineering of public services, will be equally challenging."
The Recruitment & Employment Confederation commented
The REC has welcomed Chancellor George Osborne’s proposals in his Emergency Budget to help the UK’s jobs market through reducing tax liabilities on private sector businesses and creating a stable tax environment for them to plan.
Commenting on the Emergency Budget as a whole, Kevin Green, Chief Executive of the REC said:
"We are delighted that the Government has put tackling business taxation at the heart of this budget. It is clear that the private sector will need to grow jobs as the public sector sheds them, and this Budget sets the framework for this to happen."
More specifically on the proposals, Kevin Green has made the following comments:
On the rise in the NI thresholds
"We are delighted that the Government has got rid of the planned tax on jobs. The planned rise in National Insurance Contributions would have simply added cost onto hiring temporary staff for every hour they work. We need measures which encourage employers to take on more staff to tackle unemployment. The rise in the threshold will assist this."
On corporation tax
"The reduction in the rates of corporation tax and small business tax will certainly make Britain a more attractive place to do business. This will bring new jobs to our economy. In addition the plan to reform corporate taxation over the next five years to make it simpler, clearer and more stable, is very welcome. It will offer businesses the basis on which to plan for the future."
On public sector resourcing
"The Chancellor is right to freeze public sector pay for two years, a measure which many in the private sector have already experienced and we are encouraged to see that public sector pension costs are being reviewed. But the biggest impact on the public sector will still be the slashing of expenditure, in some departments, of up to 25 per cent. The public sector needs to use this tight spending environment to fully review how it runs and operates. Simply salami-slicing the spend will not bring about the structural change the sector needs to serve in the 21st century. The public sector needs to become more efficient and know how to attract the talent it requires. In the longer term, the jobs market in the public sector should be as flexible and adaptable as our successful private sector model."
On reducing red tape
"We are delighted to see the commitment to review all regulations scheduled for introduction. The forthcoming Agency Worker Regulations are of particular concern to recruitment agencies. Whilst the regulations broadly struck the right balance, there are some areas where they could be improved before introduction. This is vital if we are to keep temporary work opportunities viable. We will also be looking for a review as to how the forthcoming automatic enrolment pensions provisions interact with the agency work market. The REC supports pensions savings for temporary workers, but in their current form the regulations are unsuited to the fast-paced dynamic temporary jobs market."
On the rise in VAT to 20 per cent
"This will hit some jobs hard, especially the supply of agency staff into the charitable and financial sectors. The REC recognises the need to raise revenue, however greater allowances should be made for those businesses and organisations who cannot recoup the VAT they are charged, especially when that charge is applied to jobs."
On the income tax threshold
The REC also noted that many temporary workers would be winners with the rise in the income tax threshold. Kevin Green continued: "Any temporary workers use agency work to dip in and out of work on a part time basis. The rise in the income tax threshold means that they will leave the agency at the end of the week with more money in their back pocket."
On welfare reform
"We welcome the focus on reducing the growth in benefit costs and moving people into work. However the REC believes that a complete review of how the benefits systems interacts with today's work of work is needed. Many people use temporary work as a stepping stone into a career and more permanent work. However at the moment the risks are too high, with it taking too long to move on and off benefits. We need a benefits system which will allow people to work the hours that they find, without having to wait weeks to move back onto benefits if the work dries up."
On small businesses and procurement
"We welcome the move to open up public procurement to smaller businesses, not least through publishing tenders free of charge so that all can access them. This move will be welcomed by niche recruiters who can help fill specialist roles and will make it easier for local firms to win business close to home."
Remember business must continue despite cuts and "There has never been a better time to invest in your organisation's future than investing in training now" for more information visit www.jml-training.com
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