Given the limited impact of Jeremy Hunt鈥檚 headline announcements he should really have focused on solving other pressing matters, says Si Harris of Randstad UK
The key measure in this week鈥檚 Budget was the 2p cut to national insurance. The chancellor Jeremy Hunt made good on his promise to reduce taxes on working people with a reduction in the base rate of NI from 10p to 8p, which will cost the Treasury just under 拢11bn a year until 2029.
Self-employed workers currently pay 10% on earnings between 拢12,570 and 拢50,270 in class 1 national insurance contributions. This was reduced from 12% of earnings in the autumn statement.
On the one hand, hard-working construction professionals will see more money in their pockets every month. This will ease the pressure from the highest tax burden in decades.
In the construction sector, the national average annual salaries range from 拢26,000 to 拢71,000, with a median salary of 拢40,000; cutting the national insurance rate by two percentage points is worth almost 拢250 to someone on a yearly salary of 拢25,000, with a maximum saving of 拢754. It is certainly better than nothing and it helps to make work pay.
The national insurance cut may be only valid for around nine months before it is torn up by Rachel Reeves
On the other hand, I don鈥檛 think this was as big a deal as some are trying to present. You could say that it does not help older workers who don鈥檛 pay NI or pensioners 鈥� who have not seen income tax rates on other income from pensions and dividends fall.
Labour looks likely to win the general election, probably in October or November. So the national insurance cut may be only valid for around nine months before it is torn up by Rachel Reeves, assuming she is the next chancellor. Sir Keir Starmer has said he will keep it, but nothing is certain in politics.
The real issue is fiscal drag. The rate itself is something of a side issue for lower-paid workers; many workers are still being dragged into paying income tax, or paying it at the higher rate, due to the freeze on income tax thresholds, despite rising pay.
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Remember, the threshold at which people start paying national insurance 鈥� 拢12,570 鈥� has been frozen until 2028. Low earners would lose out more from frozen tax thresholds than they would gain from NI cuts.
Even with the cut to national insurance, by 2029 Britons will be paying almost 拢20bn extra in taxes because more workers are being pushed into the higher tax brackets. That makes the whole thing somewhat underwhelming.
The truth is, even with the extra cash raised from abolishing the current tax system for non-doms 鈥� those who are resident in the UK but not domiciled here for tax purposes 鈥� I don鈥檛 think the government had the fiscal headroom to make the Budget a big deal.
The scope for any sizable tax, spending, borrowing or regulatory changes was just too limited. Debt is too high. Growth is too weak.
Abolishing the tax perks for non-doms will only raise 拢2.7bn, while the national insurance cut is already worth 拢11bn. So the scope for any sizable tax, spending, borrowing or regulatory changes was just too limited. Debt is too high. Growth is too weak.
As a result, we would have liked to have seen a different focus in this Budget. As a big, open economy, we need to make the best use of talent. Now more than ever before.
We wanted to see the chancellor reduce the costs of sponsoring work visas 鈥� while extending them from two to five years, ideally. This would allow employers to see a return on their investment.
We were hoping that the chancellor might rethink the higher salary threshold for the skilled worker visa, too; the threshold is set to rise from 4 April by 50% 鈥� from 拢26,200 to 拢38,700. It is denying the UK key potential workers during a massive talent shortage.
This feels peculiar given that the chancellor is partly paying for NI tax cuts on the back of a much higher population, which 鈥� thanks to net migration 鈥� is now one million higher than forecasts made in the autumn.
Immigration will add about 350,000 people a year to the population over the next five years, according to upgraded forecasts from the government鈥檚 spending watchdog. This is 60,000 a year higher than the Office for Budget Responsibility estimated in its last publication in November.
Si Harris is head of construction and civil engineering recruitment at Randstad UK
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