Employers compensate for welfare cuts

Employers may have to use their corporation tax savings to compensate employees for Government welfare cuts and other policy decisions. The Chancellor’s aim of £12bn savings in welfare spending takes some finding. Part of this is to come from reductions in in-work benefits such as working tax credits and the aim seems to be that this will, eventually, push up wages.

After all, if the national minimum wage (NMW) needs to be supplemented by in-work benefits for the least well-paid to live, it is demonstrably too low.The Living Wage Foundation suggests an hourly living wage of £7.85 or £9.15 in London whereas NMW is currently £6.50. The Budget proposal is for a new, national living wage of £7.20 next year, for those over 25.

And, to ensure that the largest employers contribute to the cost of training, there is to be 'an apprenticeship levy on all large firms'.

If employers are to balance the additional cost of their wages bill with their trading receipts, good people management to maximise productivity is going to be key. If they are to avoid the possibility of being ‘named and shamed’ as a result of an underpayment, however unintentional, in NMW, then additional care will be needed. The additional age threshold of 25 provides another point at which an underpayment could inadvertently arise.

It is not surprising that a Conservative Government would reduce its spending and pass the cost back to the taxpayer. The question is whether employer-taxpayers are ready and able to meet the challenge.

If you have any queries on any of the above issues please contact Bill Longe to discuss further.