Autumn Budget 2024: a tech/IT contracting veteran speaks up

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The dust is only just starting to settle on it.

But Autumn Budget 2024 has already been called a “mixed bag” for IT contracting and the UK tech sector at large.  

And there’s some credit to this ‘so-so’ verdict.

A neither good nor bad Autum Budget -- apparently

Rachel Reeves gave a technology recruitment expert pretty much half of what he urged, for example, in terms of announcements to support the UK IT sector.

So, yes, the chancellor unveiled the regulation of companies which the users of computing jobs boards often work through (‘umbrella companies’).

But on the other hand, no, Reeves didn’t unveil fast-track visas to address Britain’s technology skills deficit.

Why a so-so fiscal package won’t cut it for Britian

At a time when OBR numbers for inflation and growth are actually already worse than they were when Labour came to power on July 6th, a neither-good-nor-bad Budget doesn’t cut it, writes Alan Watts, a service management consultant (retired), with more than 40 years of IT contracting experience.

‘Nothing to do with us’ -- the chancellor might as well have said

The one ‘fast-tracking’ I personally wanted was at about 1300 on Budget day, Wednesday October 30th, when Reeves got to her feet in the House of Commons.

The chancellor spent the first 15 minutes explaining how seemingly everything was the fault of the previous (Conservative) administration. This rundown of the last 14 years felt just as long.

And it was all presented as nothing to do with our new government’s intentions on where to spend. That’s even though about £9billion of the “£22 billion black hole” in the public finances stems from Labour’s decisions on public sector pay.

UK growth figures (and other not great OBR forecasts)

The chancellor did make several mentions of growth in her speech -- 31 in total.

Growth was projected at Autumn Budget by the OBR to be 1.1% in 2024, 2.0% in 2025, and 1.8% in 2026.

Ominously, the OBR’s figures also show that UK inflation, UK debt, and UK borrowing, are all now higher due to Reeves’s Autumn Budget -- and in every year of the forecast.   

Four measures at Autumn Budget 20024 impede company profitability

By my calculations, four Autumn Budget announcements will inhibit the profitability of the companies that are the UK’s source of growth.

Those four profit-inhibiting Autumn Budget announcements are:

1.    Increasing the National Living Wage by 6.7% to £12.21 an hour.

2.    Increasing the rate of Employer NICs to 15% from 13.8%, with effect from April 6th 2025.

3.    Decreasing the secondary threshold, above which Employer NIC is payable, from £9,100 to £5,000, with effect from April 6th 2025.

4.    Increasing the rate of CGT payable via Business Asset Disposal Relief from 10% to 14% from April 6th 2025 and to 18% from April 6th 2026. (N.B. The government has also increased the lower rate of CGT from 10% to 18% and the higher rate from 20% to 24%, with immediate effect).

What looks good to the public (doesn’t look good to an EV installation boss)

Major government infrastructure projects announced by Labour look good to the public.

But they don’t generate wealth in isolation. They are paid for by the taxpayer -- including those same companies now under threat from these four announcements.

A comment on my LinkedIn feed from an EV installation boss sums up my stance well:

“I think the chancellor…has shown the inexperience of [a new] government. Hitting business like they have is not going to pay off in the long-term.”

Employer NICs rise to hit 940,000 businesses, and cost £800 per employee

And let’s be clear, this absolutely is the chancellor hitting enterprise.

The Office of Budget Responsibility (OBR) says some 1.2 million employers will be impacted by Autumn Budget’s NI changes, with 940,000 of those “losing out in net terms.”

The OBR adds that an estimated 60% of the higher Employer NIC cost will be passed on to workers in the first applicable tax year (2025-26). The result, overall, of Employer NICs increasing to 15%  is an “average annual tax increase om excess of £800 per employee.”

An HMRC liability per affected business of a hefty £26,000…

And perhaps most astonishingly according to the OBR, the average employer who will lose out due to the National Insurance changes will see their HMRC liabilities increase “by around £26,000.”

Before Autumn Budget, Labour published its Employment Rights Bill. It is officially estimated to impose cost on UK employers of £5billion.

One measure in the bill -- an effective ban on zero-hours contracts -- is a bit like the chancellor’s increase in the National Minimum Wage, insofar as it’s well-intentioned and welcome because it supports the lower paid.

Except, of course, it will further damage the small companies that many of the lower paid work for!

Autumn Budget 2024 sets up a rise in abusive Mini-Umbrella Companies

One very bleak side-effect of higher Employer NICs for employers is going to be an increase in the number of fraudulent Mini-Umbrella Companies.

For employees of a genuine PAYE umbrella company, the side-effect of higher Employer NICs is that their ‘assignment rate’ must rise to mitigate it.

But combined with the secondary threshold decrease, steeper Employer National Insurance will lead not only to more MUCs, but also to more tax-motivated limited company formations.

On the horizon: 17,000 tax-motivated limited company formations

The OBR is now warning:

“A direct behavioural response to the [Employer NICs] measure…is primarily that it increases the incentive for more tax-motivated incorporations (TMIs), together with non-compliance through increased incentives to form mini umbrella companies.

“We estimate TMIs will increase by a cumulative 17,000 by 2029-30 as a result of the measure.”

So the recent growth in mini-umbrellas is set to be fuelled by the Employer NICs changes, which is concerning due to the huge damage such MUCs can cause to individual workers.

Autumn Budget 2024 increases the Employment Allowance

Autumn Budget 2024 also announces an increase in the National Insurance Employment Allowance.

The EA is a scheme that lets businesses with employer NICs bills of £100,000 or less in the previous tax year deduct £5,000 from their Employer NICs bill. The scheme is not open to sole-person limited companies.

On October 30th, the government said the deduction would increase to £10,500 and it removed the £100,000 threshold, both with effect from April 6th 2025.

The risk, though, is that with more MUCs in operation, a larger number of these unscrupulous actors will improperly target the inflated NIC refunds for themselves.

Along with more TMIs, more fraudulent MUCs, and more money from the EA for MUCs to target, there’s a theme here.

Proper analysis of likely outcomes? It seems to be lacking from Labour

In particular, changes from the Labour chancellor are being proposed without proper analysis of the likely outcomes.

Or, to perhaps put it another way, the new government is demonstrating little or no hard commercial knowledge in their pursuit of extra tax revenue.

And the tax revenue-raising measures in abundance.

How much revenue raised from Employer NICs of 15% in 2025-26?

The Autumn Budget raises taxes by a hefty £40billion, and about half of that total is down to the Employer NIC changes.

In fact, higher ERNICs will raise £11.8 billion a year on average for the Treasury coffers, and reducing the secondary threshold will raise £17.7billion.

But the OBR says you can shave off £0.7bn, due to the increase in TMIs and MUCs!

Umbrella companies’ PAYE responsibility to shift to recruitment agencies

More positively for workers like IT contractors who use umbrella companies, Autumn Budget commits to a model to regulate umbrellas from April 6th 2026, to “protect around £2.8 billion from being lost to umbrella company non-compliance”.

At chapter 5.26, HM Treasury says:

“The government will make recruitment agencies responsible for accounting for PAYE on payments made to workers that are supplied via umbrella companies. Where there is no agency, this responsibility will fall to the end client business.”

Well, anything that brings the umbrella market closer to something resembling proper regulation has to be a good thing.

Defining self-employment is the Holy Grail

That said, the whole umbrella issue is more complex than the Budget allows for.

Essentially, an umbrella company is providing an employment contract for the individual to handle a heap of statutory stuff around employment.

But that’s only necessary because policymakers are still ignoring the far more sensible option -- properly defining “self-employment” or “self-employed”.

It is these independent individuals who are still being called in significant numbers to plug skills gaps across the UK, in Technology and other key sectors.

What did Autumn Budget 2024 announce for skills and the labour market?

Agency body the REC is among those supporting the Autumn Budget allocating additional funding to support jobs market inclusion and address inactivity.

Labour hopes the corresponding measures will address the working-age inactivity rate, which has crept up from 20.8% in Q4 2019, to 22.2% in Q2 2024.

Three key announcements of Autumn Budget 2024 affecting the workplace, the labour market and skills, are:

1. As part of an incoming “Get Britain Working White Paper” £240m will be invested to “trial” new ways of getting people back into work.

2. An investment of £115 million will be made in 2025-26 to deliver Connect to Work, a new supported employment programme matching people with disabilities or health conditions into vacancies and supporting them to succeed.

3. Aside from The Employment Rights Bill and Skills England, an additional £300m is being invested in further education.

The gravy train

The REC is among those saying government programmes are always more effective when they work hand-in-hand with the private sector.

My take? A couple of quangos are always to be expected from a new government, whether it’s Skills England or Connect to Work. After all, the gravy train needs to keep on chugging!

On skills, my hope is this Labour government learns from the Blair administration. One of the former PM’s bigger mistakes was shoehorning a vast number of school-leavers into university education, usually to study subjects that have no bearing on life in the hard-nosed commercial world.

Tech employers are understandably all in favour of Apprenticeships

It’s far better, surely, to get on-the-job training, for which you get paid, with a reasonable assurance of a work placement at the end of it. And we have an apprenticeship system that has done exactly that for several hundred years quite successfully.

Any steps to support this system or its spirit are to be welcomed.

Otherwise, Britain will face the dilemma of a skills shortage and no mechanism to acquire those skills from its workforce.

A mixed bag? Don’t say that in front of Rishi…

APSCo, which keeps a close watch on tech skills, focused much of its response to Autumn Budget 2024 on the regulation of umbrella companies.

I mention it only because APSCo, like the REC, doesn’t actually believe that the government has chosen the right tool for the job of regulating umbrellas.

But two other umbrella market stalwarts, Clarity Umbrella, a brolly vocal against non-compliance, and FCSA, an accreditation body, say the government is right to shift PAYE responsibility to agencies.

With such a contentious area having two supporters and two detractors, it's easy to see why Autumn Budget 2024 is being hailed as a "Mixed Bag."   

Look a bit closer, however, and you’ll soon why former Tory prime minister Rishi Sunak was irate to the point of fuming at chancellor Reeves’s offerings when he got to his feet to respond on Wednesday afternoon.

History (hopefully not) repeating itself

And I sympathise with him.

With its £40 billion in tax increases, Autum Budget 2024 contains dangerous National Insurance changes which will hurt tech workers by limiting future pay rises and even curb relevant job creation. This budget from chancellor Rachel Reeves was also a politically-driven tax grab to fund the usual Labour borrowing for big projects. The UK has been here at least twice before; the first time we went to the IMF to be bailed out, the second time led to the failure of the Brown administration. We must all hope history doesn’t repeat itself.

Written by

Alan Watts

Independent Service Management Consultant

Alan Watts has been in IT for most of the last 45 years, apart from a short spell in accountancy, eventually turning to Operations Management before going freelance in 1996. Since then he has worked with clients ranging from FTSE100s to major Government departments, with roles varying between Project Management, Interim Management and pure Consultancy.

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