Joanne Frew, Global Head of Employment and Pensions at DWF, said:
"With a commitment to cutting tax and rewarding hard work the government is cutting the main rate of Class 1 employee National Insurance contributions (NICs) from 12% to 10% from January 2024. The average worker on £35,400 will receive a tax cut in 2024-25 of over £450, which means an employee paying the basic rate of tax will have a combined rate of income tax and NICs for of 30%, the lowest since the 1980s. More money in employees' pockets will be a welcome relief as many have struggled throughout the cost of living crisis. The tax cuts should also provide a degree of respite for employers which have been struggling to meet the demands for higher pay throughout the economic crisis. Having said that, the government's commitment to providing workers with a tax cut also needs to be seen against the backdrop of maintaining the income tax thresholds which has increased tax take in real terms by pushing more individuals into paying tax, and at higher rates, which has provided the government with the fiscal headroom to be in a position to make these rate cuts.
"The National Living Wage (NLW) will increase by 9.8% to £11.44 per hour from 1 April 2024. The threshold for the NLW will be lowered from 23 to 21 years old. The change is expected to benefit 2.7 million low paid workers. As the lowest paid workers across the UK continue to struggle, employers will be under increased scrutiny with regard to NLW compliance. Due to the highly complex nature of NLW calculations, many high profile employers have previously inadvertently fallen foul of the legislation, resulting in substantial penalties and reputational damage. It will be important for employers to carry out wage compliance audits to assess the impact of this amendment in the law."
On retail, hospitality, and leisure sector tax relief
James Cashman, tax partner at DWF said:
"The Autumn Statement recently announced by the Chancellor was focussed on growth for businesses large and small. The Retail, Hospitality and Leisure sector has seen some welcome tax reliefs, particularly following the announcement by the British Retail Consortium earlier this month that sales were down in October once inflation was taken into account.
"The Autumn Statement makes specific reference to small businesses, high street shops and independent cafes and pubs that are in need of assistance. For businesses eligible for the retail, hospitality and leisure business rates relief operating in England, they can obtain a 75% reduction of their business rates bill, up to a maximum relief of £110,000 per business. The small business multiplier for business rates will also be frozen for a further year at 49.9p, with the standard multiplier being uprated by the September CPI figure to 54.6p. The Government acknowledges that business rates may go up for some but the benefits of full expensing for companies that invest will outweigh this additional cost.
"These reliefs to business rates will be beneficial to small businesses but it will not put a stop to the debate about whether business rates is a fair tax on the sector.
"Whilst these reliefs are welcome, employers in this sector will also be aware of the increase in the National Living Wage from £10.42 to £11.44 an hour from 1 April 2024. Those employers with a large workforce in lower-wage brackets will have a significant impact on their labour costs. The hope is that this will start to stimulate spending alongside the changes to National Insurance contributions, which will benefit those in the retail sector."
On Pension reforms
Liz Ramsaran, Pensions partner at DWF in London said:
"This is broadly great news for pension savers. Plans to consolidate the defined contribution market into schemes that are £30bn plus and further consolidate local government pensions to funds will ensure funds have critical mass in order to get better investment outcomes. These changes, coupled with the establishment of a Growth Fund within the British Business Bank as well as supporting other long-term asset funds in the form of the new Long-term Investment for Technology and Science (LIFTS) should make it easier for our pensions to be invested in more diverse and less liquid assets whilst supporting wider economic growth. This will allow us to begin to emulate the success of Australian and Canadian funds, leading to better loss adjusted returns for pension savers.
"A further welcome announcement is the commitment to consult on the Pension Protection Fund acting as a consolidator for defined benefit schemes and to consider circumstances in which surpluses can be repaid from defined benefit schemes. This coupled with a commitment to reduce tax on surplus refunds from 35% to 25% with effect from April 2024 will be welcome news to employers of smaller schemes who are struggling to secure competitive quotes from insurers."