REC Spring Budget Submission

With the Spring Budget coming up on 6 March, the REC has written to the Chancellor, Rt Hon Jeremy Hunt MP, sharing our latest labour market analysis and setting out 4 key themes that the government needs to invest in. The Spring Budget is perhaps the last opportunity for the government to set out both a long-term vision for the economy and actions to take in the short-term. The recommendations in our budget submission are heavily drawn from our new manifesto - Dynamic Labour Markets for Growth.

The four themes for our asks are:

Understanding the labour market and today's workers to build a clear and effective Industrial Strategy, creating a long-term plan for the labour market and tackle labour shortages

The government has an opportunity to use the Spring Budget to set out a clear long-term vision for the UK by introducing a new Industrial Strategy. An Industrial Strategy would provide the government, businesses and workers with a clear vision of how to build and develop the UK economy through 2030 and beyond. In order to do this, we need a clear image of how the labour market is currently structured - conducting a first Workplace Employment Relations Study (WERS) since 2011 can form the basis of this. WERS will ensure that an Industrial Strategy isn't just the usual skills policies but also contains plans to improve productivity and job design.

Support the labour market's ability to transition and meet future jobs needs by embracing new technologies and meeting demand for jobs related to Net Zero ambitions and other emerging industries

Creating an AI assurance framework to promote safe and ethical use has to be a key priority for the government as the use of AI becomes more and more common place. AI can be useful in many industries, including recruitment, so we need to make sure that it is being used in a way that minimises concerns over unconscious bias or unfair algorithms. A framework for AI use will address these and make sure the UK can fully embrace safe AI.

The transition to a green economy must also be a priority for the government if the UK is to meet its Net Zero goals by 2030. In order to do this, we need to encourage investment in green skills by businesses through a new green tax credit. Adding green jobs to the Gatsby Benchmarks will also help to increase the pipeline of candidates into green industries. In order to track our progress towards our targets, the government also needs to formalise the definition of what constitutes a "green job" or "green skills" to ensure the UK remains on track.

Reviewing the immigration system can also help with the labour market's transition. The immigration process is currently too long, complicated and expensive for businesses to bring in high-quality overseas candidates to fill gaps in the domestic workforce. This is particularly relevant in emerging industries where the domestic talent pool does not yet exist and overseas workers can play a crucial role in supporting these industries while the domestic workforce is developed.

Boost workforce productivity and reduce labour market inactivity in the short-term by expanding access to training, increasing childcare accessibility and reviewing public sector procurement models.

The Apprenticeship Levy has long been a target for reform by the REC. In it's current format it is too inflexible for many employment businesses to use for their temporary workers. The Treasury would see a better return on investment if it expanded the levy to be used for shorter, flexible courses. This would help to address the acute skills shortages we see in many sectors across the UK.

Improving access to work is also crucial. Much was made of the childcare promises made in the Spring Budget in 2023, but a year on the government has not really built on these commitments. More needs to be done to provide funding to childcare providers to ensure there are adequate places to meet demand. Streamlining and simplifying the application process for parents and carers to receive childcare would also increase uptake.

More use can also be made of the existing Access to Work scheme for people with disabilities. This is an existing scheme that has had some success; however, it is not well publicised and more could be done to make potential candidates aware of it. This is a low-cost option for government to help people with disabilities to work,

Procurement in the public sector, and particularly the NHS, presents a barrier to getting people into work in a sector that is critical to the UK. Current frameworks are outdated and ineffective at procuring staff and have not been updated to reflect modern ways of working. This means NHS staffing is often done inefficiently and expensively through off-framework models. Working with suppliers to review and update the frameworks would help to create an NHS staffing network that is sustainable, effective, and good value for the taxpayer.

Regulating for a sustainable and dynamic labour market that supports temporary work by committing to reviewing, and reforming employment laws and taxation

The government has taken its initial steps to introduce regulation to the umbrella company market. It now needs to follow through on this and introduce the necessary regulations to cut down on tax evasion and avoidance in this sector. This will address both issues with non-compliance and increase returns to the Treasury.

Reviewing and overhauling the IR35 rules is a key step for the government to take to modernise the tax system in the UK. The increase in contract working means more and more people are working in ways that fall within the scope of IR35. Simplifying the rules will reduce confusion and accidental non-compliance, whilst fully overhauling the CEST tool will increase clarity around individuals' statuses. These are not new problems, so it is time the government acted on these.

The wider shift to flexible working also needs to be reflected in tax efficient benefits. Schemes like Cycle to Work are not designed for the modern flexible hybrid labour market. Reviewing these schemes and expanding them to hybrid working makes sense as it will have a positive impact on the government’s green targets and employee health.

You can read the full submission here.