The Budget - the winners, the losers and the forgotten

On 22 June 2010, the Chancellor, George Osborne, delivered the details of the Coalition Government’s “tough but fair” emergency budget to deal with the crisis in public finances.

Commentators were quick to discuss who the biggest winners and losers were.  Among the winners were pensioners and some income tax payers, losers included public sector workers and families.

The Chancellor announced that from next April the basic state pension would be linked to earnings, rather than prices, which should ensure the value of this income keeps pace with inflation.  For income tax payers, the Chancellor raised the personal allowance by £1000 to £7475 meaning basic rate tax payers will be better off as a result.  (However, more than 700,000 will be dragged into the higher tax net because from April 2011 the threshold for the 40% tax rate will be reduced by £1,500 to £42,375).

First place in the loser category had to go to public sector workers for whom a two year pay freeze for workers earning more than £21,000 was announced.  Limits are to be put on the salaries of the highest paid public sector workers.  In relation to pensions, those in the public sector will have to wait a year to find out what will happen to their generous pension benefits.

A group who did not make it into the commentaries as winners or losers but who I am of the view will be badly affected by the consequences of the budget are graduates.  Unemployment among graduates has risen since the end of 2008.  The Higher Education Careers Service estimates that some 39,000 graduates join the public sector in a normal year but this recruitment will inevitably fall as the Government cuts public spending.  The Office for Budget Responsibility forecasts that there will be 490,000 public sector job losses by 2015 and 610,000 by 2016.

The Red Book stated the Government proposed to “consult shortly on how it will quickly phase out the Default Retirement Age from April 2011” which will not help the situation for graduates either.  Abolishing the default retirement age rather than raising it may lead to job blocking by more mature members of staff at businesses where people management is not top of the list of priorities.

Other employment related implications of the budget include:

The deregulation of employment law - the government’s deregulation plans include an immediate review of employment laws by the relevant government departments to “ensure maximum flexibility, protect fairness and promote competitiveness”.

Benefits - the Chancellor announced that from next April, with the exception of the state pension and pension credit, benefits – presumably including sick pay and family related leave such as maternity pay, will be up-rated in line with the Consumer Price Index rather than the Retail Prices Index.  This is expected to result in smaller increases to benefits payments.

For further information about Employment Law matters, contact Melissa Edmond, Solicitor.