Budget 2024: In pursuit of growth?

Today marked the first Labour Budget in almost a decade and a half, delivered against an unquestionably challenging economic background. It was well trailed in the media that this would be a bitter pill to swallow, leading to the Chancellor, Rt Hon Rachel Reeves MP – the first female ever to deliver a UK budget - taking a series of tough decisions. She has ended up prescribing measures which could inflict short-term pain, particularly on business.  

Stability and investment, however, were recurring themes in her speech. And while there were a number of measures that are a concern for business, there were also announcements which can be welcomed, including actions to tackle economic inactivity and grow skills, and a package of investment for infrastructure and public services designed to promote growth in the longer term.  

Nevertheless, projected growth off the back of this investment is less than would be hoped. So, asking businesses to pay a lot more for employing people, without a clearer path to higher growth levels, is a big gamble. 

Greater costs for business  

For REC members and their clients, the most concerning element of the Budget will be the 1.2% rise in employer National Insurance Contributions. This increase was slightly lower than anticipated, however, there was a much larger reduction in the threshold that determines which employers pay National Insurance, from £9,100 to £5,000. Smaller businesses needn’t panic over this change though, as the Employer’s Allowance threshold was increased to £10,500 from £5,000. But the REC will be watching how this plays out very closely, and how HMRC ensures it doesn’t drive up potential issues around compliance in the future.  

There was also a significant increase in the National Minimum Wage. With a 6.7% rise for those over 21, taking hourly pay from £11.44 to at least £12.21, and an increase of 16.3% for those aged 18 to 20, taking that rate to £10 an hour. 

The Chancellor also revealed that there would be an increase in Capital Gains Tax from 10% to 18% for the lower rate and 20% to 24% for the higher rate.  

Amongst the package of increased business costs, it was a relief to see that Corporation Tax will remain at 25% for the duration of the Parliament.  

These additional costs for business could be counterproductive in the face of the mission for growth, as they increase the cost of employing people – just at the time we are beginning to see some early signs that the market was finally recovering. We will be using our data to monitor this closely and inform government directly. 

While increased costs for business will be difficult to swallow, business will welcome steps within the Budget to reassure them in the longer term. The publication of a 'Business Tax Roadmap' is aimed at providing stability and clarity for the UK business tax regime moving forward.  

Reform of the current business rates system is welcome news and long overdue. However, the REC is concerned that while sectors like retail, hospitality and leisure will be eligible for 40% relief for their high street business, the recruitment industry itself and their high street offices won’t be.  

Further to this, while it is welcome that tax avoidance by Umbrella Companies was mentioned - there was a failure in the Treasury’s Red Book to acknowledge that it is rogue umbrella companies, and not the temporary market as a whole, that is causing the issue. We are pushing back on this to HMRC in the strongest terms. Combined with the changes to National Insurance, we have to guard against any potential proliferation of new pay models or “clever” accountancy practices. For members: it’s going to be very important to be aware of the liabilities you will face – watch this space for REC guidance on this in due course.  

Investing in the UK to promote economic growth 

The Chancellor proclaimed that the new Labour Government would "invest, invest, invest." Rachel Reeves said she was committed to re-building the nation, taking bold steps to change the fiscal rules and create headroom for investment and ultimately promote long term growth.  

Improving public services and re-building infrastructure was a key theme, with billions of pounds in funding announced for schools, hospitals, roads and transport projects. Key announcements include £1.4 billion to rebuild 50 schools a year, the HS2 tunnel to Euston and the electrification of trainlines. Whilst the bus fare cap has been extended to December 2025, the increase in the cap to £3 has irritated bus aficionado and REC CEO, Neil Carberry.  

The NHS was allocated a huge amount of additional funding as part of the Budget, with a £22.6 billion increase in day-to-day health spending and £3.1 billion increase in the Capital budget. This funding is aimed at tackling record high waiting lists, and to deliver 40,000 hospital appointments per week. While actions here are welcomed, it is vital that the extra funding is spent wisely. And unfortunately, this was a totally missed opportunity to think about staffing. Reform should start from how to boost productivity, and that largely comes from the people working in the NHS. Our message to government in the run up to this and previous Budgets remains how staffing procurement frameworks need an urgent review. With the announcement of a new Office for Value for Money, the REC will be making our thoughts on the inefficiency of NHS staffing frameworks clear to the new Chair of this body.  

Skills and Apprenticeships 

It is also to be welcomed that the Budget addressed the need to reduce economic inactivity and boost skills. £40m of new funding to transform the Apprenticeship Levy into the new Growth and Skills Levy is a welcome step in the right direction, as is £300 million for further education. But the devil will be in the detail. 

The Department of Work and Pensions is set to invest £2.7 billion to deliver individualised Employment Support Programmes and reduce health related inactivity. This includes more than £800 million for disability employment support and £240 million to tackle the root causes of inactivity. Further details will be revealed in the upcoming 'Get Britain Working’ white paper.  As part of this work, there will be 16 trailblazer projects. There is not much detail on these yet, but the REC was part of this afternoon’s call round by the DWP Ministerial team, and so we have had an early chance to provide our perspective on behalf of members.  

The importance of education has also been recognised, with the School Budget bolstered by £2.3 billion to support hiring thousands of extra teachers in key subjects.  

There was also a stated aim to strengthen the labour market with more support for working parents, with £30 million extra for breakfast clubs and an additional £1.8 billion to continue the expansion of government-funded childcare support for working parents in England. The REC has long called for this level of investment, to get parents and carers back into the workplace.  

Beyond the Budget 

In terms of what comes next, the Government needs to administer a further shot of confidence to business to fuel growth, especially given the forecasts do not look as positive as hoped. As always, the REC will continue to provide advice to government on how best to create an effective modern labour market needed to underpin a strong economy.  

On a final note, for those hoping to dull the pain with a drink this evening, the good news is that a pint of beer will be a penny cheaper!