On Wednesday, 30th, October 2024, at 12.37, the first female Chancellor, Rachel Reeves, commenced the first Labour Budget for over 14 years. The speech was its usual rowdy affair within the Westminster chamber, and the Chancellor spoke for over an hour and 20 minutes. The speech focused on how the Labour government would plug the £22bn blackhole inherited from the previous party, and the only way to do this was to “invest, invest, invest” to drive economic growth. While many of the key points of the speech were leaked beforehand, several surprises were announced. However, what does the Labour budget mean for recruiters?
NATIONAL LIVING WAGE
The Chancellor announced an increase in the National Living Wage by 6.7% from £11.44 to £12.21 per hour, which would increase to £1,400 per annum for a full-time worker in April 2025. There was a commitment to young adults to align the Living Wage in the future with an increase of 16.3% from £8.60 to £10.00 per hour for adults between 18-20 years old
MAYACHI COMMENT – This increase in the National Living Wage will be welcomed by workers at the lower end of the working market especially for young workers who will see a bigger increase in earnings. Recruitment agencies placing temporary workers will need to address this increase when calculating their charge and pay rates from April 2025.
TAXATION – EMPLOYERS NATIONAL INSURANCE
The Government renewed their manifesto commitment to not increasing Employees National Insurance, Income tax and VAT “for working people”. Instead, it felt the burden should be on businesses to pay the larger portion of tax increases via Employers National Insurance. This will rise by 1.2% to £15% from April 2025, with the lower rate threshold dropping from £9,100 to £5,000 on workers earnings per worker. The Employment Allowance will increase from £5,000 to £10,500 in April 2025, meaning that 865,000 employers will not pay any national insurance.
MAYACHI COMMENT – There’s lots of contention about the definition of “working people” and whether the increase in Employers National Insurance is a breach of Labour’s manifesto but this will ultimately affect everyone. Employers (especially in the SME sector) will be wary about employing new staff or giving pay-rises due to the increase in cost and the drop in the threshold as this will increase business costs. Many single owned companies (including many new start recruitment agencies) do not qualify for the Employment Allowance so this increase will be of no benefit to them, and they will end up paying more National Insurance contributions.
TAXATION – CAPITAL GAINS TAX
Capital Gains Tax (CGT) on selling assets such as second homes or investments will increase from April 2025. The lower rate will increase from 10% to 18%, and the higher rate will increase from 20% to 24%. Rates on residential property will remain at 18% and 24%. Entrepreneur’s relief will remain at £1m, but the rates in 2025-26 will increase from 10% to 14% and increase again in 2026-27 to 18%.
MAYACHI COMMENT – The increase in CGT will mean that recruitment agencies looking to sell their business, or shares will have to pay tax at a higher rate from April 2025. Whilst the Entrepreneurs relief was maintained the rate of relief is growing year on year.
TAXATION – PERSONAL TAX THRESHOLDS
The Chancellor announced that the freeze in income tax and National Insurance thresholds from 2028-29 will not be extended, and these will be uprated in line with inflation.
MAYACHI COMMENT – This is welcome news and a surprise in the Budget as this means from 2028-29 the thresholds for each tax bracket will be increased to ensure that as wages rise so will the threshold before a person is taxed.
EDUCATION
The Chancellor confirmed that from January 2025, they will introduce VAT on private school fees and look to remove business rates relief from April 2025. There was a commitment to £2.3bn for the core-schools budget to hire 1,000 teachers plus £300m towards the further education sector. The Chancellor also outlined £6.7bn towards capital investment in schools, including £1.4bn to rebuild 500 schools and £2.1bn towards school maintenance.
MAYACHI COMMENT – Whilst the addition of VAT and removal of business rates relief will not have a significant impact on the treasuries coffers this will certainly increase the fees paid to private schools. The increase in funding will be welcome news to education recruitment agencies placing teachers across the board as well as the construction agencies who are engaged in providing staff on public sector projects to build and maintain schools.
INVESTMENT
The Chancellor announced to drive forward a “modern industrial strategy” to sectors with the “biggest growth potential”. This included £1bn to the aerospace sector, £2bn to the automotive sector and £520m to a new life sciences manufacturing fund. There was also a pledge to protect government investments in the science sector of £20bn of funding with £6.1bn to protect core research in areas such as engineering, biotechnology and medical science.
MAYACHI COMMENT – This investment is great news for recruitment agencies making placements within these sectors that are receiving additional funding. Agencies should try to identify where these funds are being spent to provide their staff on these projects due to the backing of government funding.
HOUSING
To deliver the labour housing plan of 1.5 million new homes over the government’s term, the Chancellor announced more than £5 billion in investment, including £3 billion worth of support and guarantees to the supply of homes and support small housebuilders.
MAYACHI COMMENT – This type of investment in the construction sector will be welcomed by the recruitment agencies placing staff to the building trade.
TRANSPORT
The Chancellor unveiled funding commitments to several transport links, including upgrading the Trans-Pennine rail and the East-West Rail between Oxford, Milton Keynes, and Cambridge, and funding the tunnelling work on the HS2 project between Old Oak Common and Euston. There was also a commitment of £500m to fix roads and potholes. Lastly, the single bus fare cap was increased from £2 to £3, which is extended to December 2025.
MAYACHI COMMENT – Recruitment agencies within the engineering and railway industry should be happy for the investment being provided by the government.
NHS AND HEALTHCARE
The Chancellor outlined an increase in the Day-to-Day health budget by £22.6bn and a £3.1bn increase in the the capital budget over the next 10 years. These measures will reduce waiting lists and should provide new beds in hospitals.
MAYACHI COMMENT – Whilst everyone will be pleased with the increase in the NHS’s budget from the government, there was very little detail on how the funds would be spent or where the staff will come from. Recruitment agencies in the medical sector have already had a tough time over the past 18 months with a reduction in placements due to budget cuts but this will hopefully mean that there is more opportunity again for the framework agencies to fulfil the required placements within the NHS.
ALCOHOL, FUEL, VAPING AND TOBACCO DUTY
- Fuel duty is frozen for another year, and the 5p cut will be maintained.
- Tobacco duty will rise by 2% above RPI, hand-rolling tobacco will see an increase of 10% this year and a flat rate duty on vaping liquid from 2026.
- Alcohol duty will increase on non-draft alcohol by RPI from February 2025, but the duty on draft alcohol will be reduced by 1.7%, which will equate to “a penny off the pints at the pubs.”
MAYACHI COMMENT – Fuel duty was a worry for most working people especially getting to and from work during the cost-of-living crisis, so this freeze is welcome news. The reduction of the alcohol duty can only be good news for the Thursday night recruitment drinks… if you are drinking pints!
So, what does the labour budget mean for recruiters?
In summary, whilst the Chancellor demonstrated that Labour is keen to invest in public services and infrastructure, it still came with several biting tax rises which will affect SME businesses and, in turn, “working people”. Recruitment agencies should pounce on the investment opportunities presented to try to place staff into the projects receiving government funding. The unknown factor is the impact of the “Day One” employment rights and the increase in Employers National Insurance contributions from April 2025, which could have a knock on effect of clients wanting to hire permanent staff or could open the door for more contract and temporary placements. The proof will be in the next 6-9 months when the fallout from the tax rises will take effect and whether the investment in the public sector will have the desired effect.