June 2010 Budget | Employment Implications

Default retirement age

• The Government will "consult shortly on how it will quickly phase out the Default Retirement Age from April 2011".

Deregulation of employment law

• The Government has committed itself to reduce regulatory costs by a "one-in, one-out" rule.  The Chancellor announced that the Government's deregulation plans, which will be published by BIS in July 2010, include an immediate review of employment laws by relevant Government Departments "to ensure maximum flexibility, protect fairness and promote competitiveness. Changes to employment law will be made as part the Government's one-in, one-out approach to regulatory reform".  You can get involved and make your own suggestions at the Government's 'Your freedom' website.

Reduction in tax and NICs for the lower-paid

• With effect from 6 April 2011, the income tax personal allowance for those aged under 65 will increase by £1,000 to £7,475.

• Higher rate taxpayers will not benefit from the increase which will be achieved by lowering the threshold above which higher rate tax is paid. The exact figure will be announced in the autumn and will be frozen in 2012-13.

• For NIC's, the increase of £570 in the primary (employee) threshold (announced in the March 2010 Budget) will take effect from 6 April 2011.  At the same time the increases of 1% in employee contributions (from 11% to 12%) and in employer contributions (from 12.8% to 13.8%) will also take effect.

• The secondary (employer) threshold will be increased by £21 above the RPI, also from 6 April 2011. At the same time, the upper earnings limit will be reduced to align it with the higher rate threshold.

Indexing of benefits

• The Chancellor announced that, with the exception of the state pension and pension credit, benefits will be linked to the Consumer Prices Index ('CPI') rather than the RPI with effect from April 2011. It is anticipated that, for example, sick pay and maternity pay will be covered.

• PAYE, workplace canteens and employer-supported childcare

• A commitment to explore ways of improving the PAYE system.  The first step will be consultation on ways of capturing more frequent or even real-time PAYE data.

• A consultation on introducing powers for HMRC to require financial security where PAYE and NICs are at serious risk of non-payment.

• Legislation introduced in the Finance Act 2010 (restricting tax breaks for workplace canteens) will take effect from April 2011.

• Confirmation of changes to employer-supported childcare, including nursery vouchers and the restriction of the tax benefits for higher and additional rate taxpayers, for new joiners to a scheme from 6 April 2011.

Regional employer NICs holiday for new businesses

• The Government will shortly announce details of a scheme to promote the creation of new businesses in areas most reliant on public sector employment (Scotland, Wales, Northern Ireland, the North East, Yorkshire and the Humber, the North West, the East Midlands, the West Midlands and the South West). During a three-year period, new businesses in these areas will be exempt from the first £5,000 of Class 1 employer NICs due in the first 12 months of employment. This will apply for the first ten employees hired in the first year of business. Subject to meeting the necessary legal requirements, the scheme is intended to start on 6 September 2010 but this is to be confirmed.

• 50% income tax rate to remain in place for time being

• The 50% additional income tax rate will remain in place for the time being. The rate took effect on 6 April 2010 and applies to income over £150,000.

Restricting pensions tax relief

• Following lobbying the Government has resolved to overhaul the previous Government's plans for restricting pensions tax relief for high earners, which were due to be implemented from 6 April 2011.  The measures will be repealed in regulations enacted under the forthcoming Finance Bill. The repeal will only take effect once the Government has decided on a replacement approach.

Next steps

The Government has published a Finance Bill containing the legislation that will enact its "key priorities". That Bill is expected to get Royal Assent before the summer parliamentary recess.   Further details can be obtained here.

A further Finance Bill will be introduced after the summer recess to legislate previously announced and Coalition Government adopted tax measures.  This is expected to be published in draft sometime this month.