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A Budget For Recruiters?

A Budget For Recruiters?

Heres an excellent summary from Simon Kite, Partner at Saffrey Champness, followed by comment from Hays, Synergy Group, Extrastaff, The REC, The CBI, The PCG and Deloitte.

It came as no surprise that the Chancellor avoided any radical changes in such a sensitive pre-election Budget:-

no new announcements on capital gains tax, VAT, income tax, inheritance tax or national insurance

nothing of any substance as regards how exactly Labour will cut the deficit. Indeed, the Chancellor announced that Labour will stick to their spending plans for next year (if they are still in government).

There were however some bits of good news within the 2.5 billion growth package that was announced for small businesses:-

Doubling of the Annual Investment Allowance to 100,000 (although only the larger agencies are likely to have this level of capital expenditure)
A cut in business rates for one year

Doubling of Entrepreneurs Relief to 2million per individual. If your partner also has shares (a common tactic for owner managed businesses) then this effectively gives 4million of capital gains at 10% before the 18% rate kicks in

Promises of better access to finance (although previous announcements of this nature have proven to be pretty "hollow")

The popular "time to pay scheme" (which has helped businesses spread over 5billion worth of tax payments over a timetable they can afford) to be extended to cover "the whole of the next parliament". This scheme has been widely used by recruitment businesses.

The Chancellor described this as a "budget for jobs", with a real focus on keeping the lid on unemployment (good news for recruiters):-

public sector spending cuts more likely to be pay cuts rather than job cuts, in addition to cuts coming from cost saving initiatives such as moving certain functions to cheaper premises

measures to safeguard the future of financial services in Britain (a significant employer in places such as London, Leeds, Edinburgh and Manchester)

Investment in infrastructure (high speed rail links from London to Midlands and the North to Scotland, Crossrail, Heathrow etc) to support some 100,000 jobs
385m towards road and motorway maintenance
Significant investment in sustainable energy (especially offshore wind power) in addition to recent announcements regarding nuclear energy
More front-line jobs in social care
Maintaining funding for police officer numbers

Other announcements relevant to recruiters:
Reduction to the minimum number of hours that those over 60 need to work to receive Working Tax Credits
A consultation on the reform of employers' rights to make people retire at 65
continued support to the Job Centre Plus network and the Rapid Response Service at firms hit by redundancies
Extension until March 2012 of the guarantee to provide a job or training to every 18-24 year old out of work for 6 months
The Chancellor's statement and David Cameron's response suggested that the Conservatives will be more ruthless in cutting public spending (including jobs). Recruitment companies that supply staff to public sector bodies should therefore keep an eye out for post- general election announcements from whoever is in power.

A few final words:-
A new government may well announce an "emergency Budget" shortly after the next general election

Many commentators are still expecting Capital Gains Tax and VAT rates to go up
Higher CGT rates may lead to more merger, acquisition or company disposal opportunities (although funding deals will remain a challenge) as transaction activity "spikes" before a new, higher, rate kicks in

Higher VAT rates may be an issue for recruiters supplying to sectors who cannot recover VAT (e.g. certain financial services or healthcare companies). Recruitment needs by those "end users" may be brought forward in order to avoid higher tax rates.

Higher National Insurance rates have already been announced for April 2011, increasing the cost of staff to employers. Labour seems to like using NI as a tax generator. There may be more increases on the cards if the deficit doesn't decrease at the rate hoped for.

HAYS
Eliot Davies, Director of Hays Energy, comments on the 2bn investment bank to back low-carbon industries:
We are encouraged by the investment in supporting low carbon industries, which is likely to offer more employment opportunities in the sector. It should create jobs in offshore, wind, tidal and the nuclear sectors and will be essential in ensuring we meet our legally binding 2020 CO emission targets. It is important that we equip our graduates with the necessary skills in order to work and have a sustained career in this growth sector, which is benefiting from continued investment.

The SYNERGY GROUP
Kieran Ryan, managing director of leading recruitment company The Synergy Group Ltd, comments on the Chancellors Budget Report and how his policies will effect public sector employment and the wider recruitment industry.

As expected, the Chancellor confirmed in the 2010 Budget Report that public sector pay rises will be capped at one per cent for the next two years and that the sector will have to make efficiency savings of 11bn.

This will undoubtedly result in a hold on recruitment for many public sector departments that are not front line services. It is likely, however, that the council services which are proven revenue sources for local authorities will see an increased level of investment and expansion.

I would anticipate that many local councils will now devise contingency plans to gain back the funds they have lost from Central Government, and it is likely that they will invest in the departments which are proven income generators such as the revenue and benefits departments, parking services and traffic management.

At The Synergy Group, we have seen many local authorities increasing their recruitment drives in these departments in the last year and expect this trend to continue following todays Budget announcement.

Interestingly, the Chancellor also announced that Government borrowing for the current fiscal year was lower than estimated in the Pre-Budget Report due to the level of UK unemployment being lower than expected.

We have certainly seen a level of confidence return to the recruitment and employment market in the last few months with more vacancies becoming available and many companies looking to recruit or expand.

I expect this trend to continue over the next financial year and anticipate that the stall in private sector recruitment during the recession will also start to lift.

Tim Millward, CEO, Extrastaff.
Although Darling talks about reducing the deficit in the next Parliament it's important to remember that that is just the difference in between annual Government receipts (i.e. taxes) and annual Government spending. The total of this national debt currently is almost a trillion pounds and, based on Darlings figure this is due to rise to a trillion and a half. Until annual spending is less than income the national debt and the interest costs in servicing it remain ridiculously high. Government spending and waste needs cutting now.

The majority of SME business will not be eligible for business relief which is only applicable to ratable values of up to 6,000 so this would appear to be a PR exercise rather than constructive help for SMEs.

For a business such as ourselves (Extrastaff) which supports a large branch network there will be a significant negative impact created by the massive tax increases already planned the Government have given the recruitment industry no help whatsoever with the jobs tax (NI increases) nor the burgeoning level of red tape (AWD, drivers CPC etc etc). The UK ranked 4th in the world for freedom of red tape and tax in 1997 and is now 84th.

As a country, were in very real danger of having its AAA credit rating downgraded (as happened to Portugal yesterday), which would be catastrophic for the economy and business.

REC
A good Budget for the recruitment industry? Commenting on this afternoons Budget statement, Kevin Green, REC Chief Executive, says:

The overall economic outlook remains one of concern with the Chancellor forecasting only one to 1.5 per cent growth. This confirms that the road to recovery for the UK jobs market will be very slow-going.

Additional support and training measures announced by the Chancellor will not help unless we boost demand and lift barriers to job creation, such as excessive employment legislation and business taxation. Within this context, it is disappointing that there has been no move to shelve the proposed increase in National Insurance which is tantamount to a tax on jobs.

Specific support measures for jobseekers announced in the Budget include enhancing access to working tax credits for older workers and extending the young persons jobs guarantee until March 2012. Assessing the effectiveness of support measures for young jobseekers is one of the aims of the RECs Youth Employment Taskforce.

Commenting on the some of the other announcements affecting recruiters, Kevin Green continued:

Business rate reductions for SMEs and enhancing access to credit will be welcomed by most agencies. Looking ahead, a major challenge for the industry is how public expenditure cuts will impact on public sector recruiters. The REC will continue to argue that a radical new approach to public sector service delivery is needed and that flexible staffing arrangements should form part of this.

CBI REACTS TO RISE IN MINIMUM WAGE
Responding to the announcement in today's Budget report of an increase in the National Minimum Wage, John Cridland, Deputy Director-General, CBI, said:
This moderate increase recognises that many businesses are struggling, and helps protect jobs at a time of rising unemployment. The inflation-busting rise some unions had called for would have hit firms hard and put many lower paid workers on the dole."

PCG
MUCH ADO ABOUT NOTHING PCGs verdict on the Budget
Alistair Darlings last budget was a political speech rather than a serious announcement about how to tackle the problems of the economy.

It was much ado about nothing said John Brazier, Managing Director of PCG, the voice of freelancing. In reality it was the pre-Budget Budget. Like the rest of the country I will be waiting for the real Budget which will happen after the General Election. Frankly, the freelance community has little to take away from the red book, as we expected.

No real new changes have emerged, with key changes affecting PCG members having already been announced previously- such as the increases in national insurance for employers and employees.

Anne Redston, Visiting Professor of Taxation at Kings College London, who is analysing the budget for PCG, said: In terms of the big picture, there are many promises - such as the 20 billion efficiency savings - but no real detail. In the context of PCG members, the holding of Capital Gains Tax to 18% is good news and increasing the number of public contracts awarded to small and medium-sized business to 15% of all contracts is probably helpful.

John Brazier summed up his views: In some ways the Government has seemingly done nothing to harm us. However it is in the real Budget after the General Election where PCG will be expecting genuine progress for freelancers, contractors and micro-businesses. The flexibility they provide to the economy must be recognised

DELOITTE
Budget delivers more bad news for employers
Matt Ellis, lead partner of the employment taxes group at Deloitte, comments: Aside from measures already announced - the introduction of the 50% tax rate from 6 April, restriction of higher rate tax relief on pension contributions and 1% increases in National Insurance (NI) from April 2011 - todays Budget announced a raft of measures to counter planning designed to mitigate some of these changes. As a result, the options available for employers to deliver tax-efficient remuneration to their employees could narrow considerably in the future.
In his Budget statement, the Chancellor signalled specific focus in three key areas Geared growth share arrangements, Employee Benefit Trusts, and alternative pension structures. Consultation on these areas will take place during Summer 2010 with new legislation expected in April 2011.
Unsurprisingly, if the tax costs for employment go up, employers are keener to find ways to mitigate them. The Chancellor clearly believes this is what is happening and todays announcement shows that it will be harder and harder for employers to implement tax efficient remuneration arrangements in the future.

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