On 21 March 2012, Chancellor of the Exchequer George Osbourne stood outside 10 Downing Street, right arm outstretched and clutching a red briefcase (although sadly not William Gladstone’s original briefcase from 1860, which is now too fragile for anyone to trust a politician with it - much like the British economy). Later that day, the Chancellor delivered his Budget speech for 2012. The response from the Labour party and the media has generally been critical, claiming that the Tories are focusing too much on helping the wealthy whilst the poorer and more disadvantaged members of our society are made to suffer further.

The main focus of the newspaper reports has, quite fairly, been the changes in taxation. Stamp duty on properties over £2m immediately rose from 5% to 7%, whilst the corporate tax rate will fall from 26% to 24% in April 2013 and to 22% by 2014. The top 50p tax rate will be cut to 45p from April 2013, and the personal tax allowance will rise to £9,205 at the same time. According to reports, approximately 24million workers will benefit from these changes, whilst approximately two million low-paid workers will not pay any income tax at all thanks to the increased personal allowance.

Changes in child benefit, tobacco duty and alcohol tax, and the introduction of VAT on hot food sold by bakeries and supermarkets (now known thanks to Twitter as the “Pasty Tax”) have also caused much discussion. The changes to child benefit in particular have provoked debate. The Chancellor originally indicated that households in which any partner earned more than £50,000 would lose their child benefits altogether. Critics pointed out that this could result in a family with two working parents, both earning less than £50,000 but jointly earning significantly more, keeping their benefits, whilst a single income family on £50,000 but earning less than a two-income family overall would lose this benefit.   However, Mr Osbourne indicated in the Budget speech that the withdrawal of benefits would be gradual. Child benefits would be lost by 1% of child benefit for every extra £100 earned over £50,000, meaning only those with an income of more than £60,000 will lose all their child benefit. 

Taking up less column inches are the changes that Mr Osbourne has proposed in respect of employment law. One announcement that is sure to be welcomed is the Government’s intention to abolish or improve a whopping 84% of health and safety legislation. Many businesses consider the current health and safety rules to be outmoded and stand in the way of common sense, but as yet no action has been taken.

The Chancellor also announced that the Sunday trading laws, which limit large stores to trading for no more than six hours on Sundays, will be relaxed from 22 July 2012 to 9 September 2012 whilst London hosts the Olympic Games. This has been criticised by Labour, trade unions and church leaders, who have expressed concerns that this may prejudice smaller businesses (who are allowed to be open all day on Sundays and benefit from the closures of larger stores) and working parents who have childcare commitments.

The Budget failed to deliver any major or unexpected changes, with reviews being undertaken to consider whether public sector pay can be made to be responsive to local pay rates, and how employee ownership can be encouraged. The Government will also consult on proposals to require organisations’ key office holders and controlling persons to have PAYE and NICs deducted at source.

The Budget has continued the Coalition’s trend of reducing red tape for businesses in an effort to stimulate growth in the UK. Many of the Government’s earlier proposals, made for this very reason, came into force on 6 April 2012.

One of the more controversial changes will see the qualifying period for unfair dismissal claims rise from one year to two years. Anyone whose employment begins on or after 6 April 2012 will therefore need to have completed two years’ of continuous service before being provided with this statutory protection. Businesses have welcomed the move and claimed that it will encourage employers to take on staff, but critics have argued that it will do nothing to improve unemployment and will result in employees becoming “disposable”. There are also concerns that it will result in an increase in other claims that do not require such length of service, such as discrimination claims.

Whether the changes introduced by this year’s Budget will have any positive effect on unemployment rates or economic growth remains to be seen, but for employers at least this Budget is a reasonable step forward.

This article was first published as part of our Employment Law Update - April 2012. To subscribe, please email updates@solts.co.uk.