The 2021 Budget Statement
03 March 2021
Earlier today the Chancellor of the Exchequer, Rishi Sunak, delivered his second full Budget statement since taking office in February 2020.
As with last year’s statement – and indeed both his “Summer Statement” and the “Winter Economy Plan” in the months that followed – this Budget was dominated by the economic impact of the COVID-19 pandemic. This Budget was therefore a mix of continued state support through the remainder of the crisis alongside new revenue measures to help manage the nation’s economy in the years ahead.
It follows that the nature of the 2021 Budget statement contained far less of the “theatre” that usually accompanies a formal Budget speech, and was in many ways largely a confirmation and explanation of the briefings that have been given to the print and broadcast media over the last few days.
Nevertheless, there were several key areas for the Human Resources and employee benefits industry to absorb and understand, and below is a brief summary of these issues. Please follow this link for the supporting documents from the HM Treasury website.
The Coronavirus Job Retention Scheme (CJRS)
The Prime Minister’s recent announcement of the “roadmap” to lift national COVID-19 restrictions also confirmed that the various state support measures for businesses and individuals alike would continue past their previously suggested end dates. And a major component of that support package has of course been the Coronavirus Job Retention Scheme (CJRS).
And today the Chancellor confirmed that CJRS is now set to continue way beyond the expected end date of national restrictions (which are due to finish on the 21st June 2021).
CJRS is now scheduled to conclude at the end of September 2021, albeit with employers providing an increased amount of the overall costs from July onwards. We will of course provide a fuller update on these changes once the full details are available.
The Kickstart job creation scheme
The Chancellor reconfirmed his commitment to the so-called “Kickstart” job creation scheme for younger people. As we have previously covered there is significant financial support for this initiative, with £2bn already pledged by the Chancellor in this respect, and reconfirmed in the supporting Budget document.
For more information on the Kickstart scheme please see our post from January 2021.
The pension lifetime allowance
First introduced in 2006 (as part of the optimistically named pensions “simplification” legislation), the lifetime allowance represents the maximum value of benefits that can be taken from a registered pension scheme without being subject to an additional taxation known as the “lifetime allowance charge.”
In 2006 the lifetime allowance was established at £1,500,000, and it subsequently increased to a high of £1,800,000 in the 2011/12 tax year. Then, with the impact of the austerity years following the financial crisis, this allowance was reduced to as low as £1,000,000, and has in recent years increased a little in line with inflation to its current level of £1,073,100.
As was suggested in media reports last week, the Chancellor has decided to cease the inflation-linked increases to the lifetime allowance until at least April 2026 to help balance the books following the COVID-19 pandemic. This is a very long period without any uplift, and as such many savers might reach or surpass the lifetime allowance limit in the years ahead.
The issue for employers and employees here is that the lifetime allowance is now impacting far more than just the very highest earners in the UK workforce. Increasingly employees on relatively modest salaries (and particularly those with old Defined Benefit pension entitlements) are exposed to this restriction, and employers should therefore revisit their high-savers strategy to ensure that they are appropriately supporting all employees.
Commenting on this issue, Steve Herbert, Head of Benefits Strategy at Howden Employee Benefits & Wellbeing (Howden) said;
“We would also like to highlight that many Group Life Assurance arrangements are also written under registered pension scheme rules, and can therefore represent a large slice of the lifetime allowance in the event of an employee’s death. So employers should be mindful of this issue, and we would encourage more organisations to perhaps consider an “Excepted” Group Life Assurance scheme (where benefits do not count towards the lifetime allowance limit) as a partial response to this issue.
This could well become a major theme for employers to explore in the years ahead.”
Freezing of Income Tax and National Insurance thresholds
The 2019 Conservative Party Manifesto made a specific pledge not to increase the level of Income Tax or National Insurance contributions. Yet that promise did not extend to personal tax thresholds, and the Chancellor has therefore opted not to increase these thresholds until 2026. However, the announced changes for the 2021/22 tax year will still take place.
This seemingly small change is likely to significantly increase income to HM Treasury over time, because - despite the many millions of employees who have been mainly supported by the Coronavirus Job Retention Scheme (CJRS), and indeed those that have lost their jobs during the pandemic - many workers who have retained their usual hours and work have also seen increases to their pay (please see the latest release from the Office for National Statistics (ONS)).
It follows that many taxpayers may soon find themselves passing the current thresholds and paying a higher rate of taxation accordingly. Of course Salary Sacrifice schemes (where available) can be a useful tool to avoid crossing tax thresholds. It’s also worth highlighting that contributions to pension schemes generally provide tax relief linked to the highest marginal rate paid too. So employers might want to revisit their communications in this area following this announcement to better support their employees.
What wasn’t changed?
Despite the above important announcements, it was also notable that some important areas of the employee benefits landscape appear to have been left untouched in this statement.
Commenting on this, Howden’s Matthew Gregson, Head of Corporate said;
“Outside of the frozen limits and thresholds for income tax, National Insurance and the Pensions Lifetime Allowance, it is very welcome to see that the Chancellor resisted the urge to raid some other aspects of benefits programmes that provide significant value to employers and employees.
Most notable was the absence of any commentary on changes to pension tax relief for high earners, maintaining Insurance Premium Tax (IPT) at current levels, meaning healthcare plans aren’t increasing in cost, and no mention of taxation of healthcare trusts, which are currently outside of the remit of IPT (being that they aren’t insurance policies).
Similarly, continued support for the tax efficiency of the cycle-to-work scheme and, more significantly (in terms of impact to the Exchequer’s coffers) electric vehicle company car plans, means that employers can continue to promote these benefits along the lines of tax, health and green initiatives.
Overall, we support a budget that focuses on the big ticket items for the economy and doesn’t look to the small - but hugely important - policy areas that have significant individual benefit, but would have netted very little in new revenues for HRMC.”
Howden Employee Benefits & Wellbeing will of course comment and expand on many of the above themes in the weeks, months and years ahead.
For more information on any of the above topics, please speak to your usual Howden Consultant in the first instance, or visit our website for other contact options. For the latest details on COVID-19 & Employee Benefits provision please visit our coronavirus hub.
Steve is Head of Benefits Strategy, Howden Employee Benefits & Wellbeing, and is an award-winning thought leader on Pensions, Employee Benefits, and Human Resources issues. He is occasionally accused of making Employee Benefits interesting.