Autumn Statement 2011: The impact on employee benefits

Chancellor George Osborne delivered his Autumn Statement to government on 29 November 2011. Here is a round-up of the key issues affecting employee benefits.

Fuel duty increases revised

The 3.02 pence per litre (ppl) fuel duty increase that was due to take effect on 1 January 2012 will be deferred to 1 April 2012.

The inflation increase, which was planned for 1 August 2012 and was expected to be in the region of 1.92ppl, will be cancelled.

This will mean there will only be one retail prices index (RPI) increase next year.

On 1 August 2012, the duty rate for leaded petrol will change by the same monetary amount as main fuel duty.

Meanwhile the duty differential for liquefied petroleum gas will be maintained until 1 August 2012 when it will be reduced by 1ppl.

The government will publish details of the fair fuel stabiliser, unveiled in this year’s Budget report, at the 2012 Budget.

Government cracks down on asset-backed pension arrangements

Legislation will be introduced in the Finance Bill 2012 to ensure the amount of tax relief given to employers making asset-backed pension contributions to registered pension schemes accurately reflects the amount of payments made, and does not give rise to unintended excess relief.

Osborne said the move would save £340 million in 2011/12 and £450 million a year for the next five years.

Asset-backed financing for pension schemes is when a sponsoring employer uses business assets to generate cash, which is then paid to the pension scheme.

Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), said: “Many employers have used physical assets to help strengthen their pension funds. There is a case for some reworking of the tax rules around this approach. But these are assets which help guarantee staff pensions, and the government must not block this route.”

Income tax personal allowance to rise to £10,000

As announced in the Budget in April 2011, income tax personal allowance will increase to £8,105 in 2012-13.

In the Autumn Statement the government announced further real terms increases in subsequent years towards the goal of a £10,000 personal allowance.

Low Pay Commission to consult on national minimum wage

The government will invite the independent Low Pay Commission (LPC) in its next report to consider and implement the best way to give business clarity on future levels of the National Minimum Wage, including consideration of two-year recommendations.  

It said: “This would provide greater certainty for small and large retailers, and other businesses, when planning employment and investment decisions. Greater certainty of future national minimum wage levels would reduce risks for employers, enabling them to take on staff with greater confidence.  

“Large retailers need to formulate and finalise their business plans well before the start of the financial year and certainty on costs is a vital element in creating investment.”

Public sector pay increases to be capped at 1% for two years

Pay increases for public sector employees will average 1% for each of the two years after current pay freezes end.

Savings from the pay increase cap will help to support balanced economic growth, social mobility, and help young people find work.

Dave Prentis, general secretary at public sector union Unison, said: “We desperately need to get Britain spending. A bad situation will only be made worse by imposing a £3.6 billion tax on public sector pensions, by holding down public sector pay, and by throwing hundreds of thousands of public service workers onto the dole.

“It is time to drop the public sector pensions tax, and take steps to put money back into people's pockets. This will boost growth and get Britain hiring – as it is, the private sector is in no position to dig the country out of trouble."  

Charles Cotton, rewards adviser at the Chartered Institute of Personnel and Development (CIPD), said: "While the CIPD understands why the government plans to cap public sector pay rises at 1% for the next two years as existing two-year wage freezes come to an end, we hope that rises can be focused on the lowest paid (and the best performers)."

Christopher Johnson, head of Mercer’s human capital business, said: “Easing the public sector pay freeze by capping pay increases at 1% should be welcomed by public sector employees.

“This increase, plus incremental progression, will ensure that public sector average earnings growth continues to outstrip private sector earnings growth.

“Our view is that it is right to restrain public sector pay. There is both an issue of affordability and an urgent case for pay reform.

"While the government's short-term actions address short-term affordability pressures, the government must address the fundamental long-term issues about how much public servants should be paid and how public sector pay can better encourage a culture of performance.”

Government to consult on anonymised fit note data

The government is to consult on the content of anonymised fit note data to be published from 2012.

The published data is aiming to drive innovation in the occupational health sector and improve the management of sickness absence.

Government confirms state pension age will increase

The state pension age will increase to 67 by 2028, in a move that the government anticipates will save around £60 billion.

The increase will be made between April 2026 and April 2028.

The Office of Budget Responsibility forecasts that spending on state pensions will rise from 5.5% of gross domestic product (GDP) in 2015-16 to 7.9% of GDP in 2060-61.

Zoe Lynch, partner at Sacker and Partners, said: “The rise in the state pension age from 66 to 67 will be brought forward by a decade to 2026 from 2036. This follows the rise to age 66 being accelerated as well and is understandable given the longevity figures. At least people have more time to prepare for this one.”

Plans to increase the state pension age to 66 have already been brought forward to 2020.

Government confirms pension funds to invest in infrastructure projects

A set target of up to £20 billion of investment from British pension funds for infrastructure projects has been confirmed.

On 28 November, the government signed a memorandum of understanding with the National Association of Pension Funds (NAPF), the Pension Protection Fund (PPF), and a separate group representing pension schemes and infrastructure fund managers to support additional investments in UK infrastructure.

The government is also working with the Association of British Insurers to set up an Insurers’ Infrastructure Investment Forum.

Joanne Segars, chief executive of the NAPF, said: "We are keen to work with government to try to make it easier for pension funds to back big infrastructure.

"The UK desperately needs to update its infrastructure, and pension funds are hungry for stable, long-term, inflation-linked investments.

"The government hopes to unlock £20 billion, but the amount that comes from pension funds depends on the structure of the investment platform and the pricing of the assets.

"We are at a very early stage, and there are no plans or details on the table yet. We look forward to developing proposals with the Treasury over the coming months."

Government announces review on regional public sector pay rates

George Osborne is to ask independent pay review bodies to consider how public sector pay can be made more responsive to local markets.

The consultation will report by July 2012.

It will apply to all pay review body workforces, with the exception of doctors, dentists, the armed forces, and the judiciary.

According to the Treasury, while private sector pay is set in accordance with local labour markets, public sector pay is usually set on a national basis. As a result, in many areas, public sector pay does not reflect local labour market conditions.

For example, the Institute for Fiscal Studies (IFS) has found that public sector workers are paid similar wages to private sector workers in some parts of the country, but over 10% more in other locations.

Some public sector organisations, such as HM Courts and Tribunals Service, have already successfully taken action to ensure pay is in line with local labour markets, but there is the potential for others to take a similar approach.

Christopher Johnson, head of Mercer’s human capital business, said: “We are also very pleased to see the government’s decision to invite public pay review bodies to review local pay for the public sector, although it is unlikely to be implemented any time soon.

“The impact of the current practice of using national pay scale means that in some local markets outside London and the South East, the public sector drives the local jobs market making it difficult for private sector employers to compete for talent.

“However, the problem needs to be carefully addressed as the localising of public sector pay has an impact on the local economy.”

Government plans to cut health and safety rules for small employers

Health and safety regulations for smaller employers will be cut.

The government has accepted the recommendations of Professor Lofstedt’s Reclaiming health and safety for all review, which was published 28 November.

The recommendations include:

•exempting self-employed people posing no risk to others from health and safety legislation;

•simplifying guidance and codes of practice;

•taking measures to ensure businesses see consistent and predictable regulation across the UK including a power for the Health and Safety Executive (HSE) to direct all local health and safety regulatory activities;

•the HSE taking steps to clarify the legal position of businesses to ensure they are only held accountable for those things they can realistically manage;

•the HSE negotiating a risk- and evidence-based approach to health and safety regulation with the European Union.

Call for evidence on the effectiveness of Tupe regulations

George Osborne announced a call for evidence on the effectiveness of Transfer of Undertakings (Protection of Employment (Tupe) regulations.

Osborne said any proposed changes to the current Tupe regulations, which protect employees’ rights and smooth the process of business restructuring, would be consulted on in 2012.

Government looks to overhaul red tape on employment issues

The government is to look at whether, and how, a rapid resolution scheme could be introduced as an alternative to the current employment tribunal process to provide quicker, cheaper determinations in straightforward, low-cost claims, such as holiday pay.

The government has also called for evidence on collective redundancy rules on matters such as the consequences of reducing the current 90-day consultation period for more than 100 redundancies to 60, 45 or 30 days.