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In the second Budget of 2021, Chancellor Rishi Sunak echoed the sentiment of March’s speech by proposing that the future of the post-covid UK economy will be bright; with higher wages, a greater focus on skills and productivity, and consequently a more robust and resilient workforce.

Amongst a 6.6% rise to the National Living Wage, plus an increase in funding for education worth £1,500 per pupil, it is clear that the government’s tax and spending plans for the year are focused upon alleviating the current skills shortage that is crippling our country – but are these changes enough? We’re divided.

Overall, the budget was positive. The economy is recovering quicker than predicted, the furlough scheme has protected thousands of jobs and thus, unemployment is at a controlled level – but this doesn’t mean we’re out of the woods. Dubbed by the government as the ‘Recovery Budget’, the Autumn Budget has promised “the largest real-terms increase in overall departmental spending for any parliament this century” (Gov) and this spend is undoubtedly going to be a huge driver in repairing the immense damage caused by lockdown. But as Sunak fails to face business rates, the recruitment crisis, employment costs, and regulation within the umbrella sector head on (Recruiter), the government are at risk of falling short on the promises and successes they intend to deliver.

Promisingly, Sunak announced that the economy is predicted to grow by 6.5% by the end of 2021. Although this is welcome news that suggests further growth is imminent for 2022, it is important to understand that the most pressing issue facing the UK is our inability to fill key positions that drive our economy.

The budget revealed that unemployment is set to peak at 5.2% in Q4 of 2021. On one hand, this figure is music to one’s ears as original predictions set out by the OBR in July 2020 suggested a peak of 12% at this point – largely down to the termination of the furlough scheme. On the other hand, it is important to appreciate that the economy’s steady level of unemployment (due to sickness, ill-health, disabilities etc) make a considerable impact to this figure, and with the unforgiving labour shortage debilitating our ability to boost the economy to pre-pandemic levels, the reduction in the unemployment rate can only be deemed as concerning.

With the Office of National Statistics reporting over a million open vacancies in the UK in Q3 of 2021, the facts are simple. In the midst of a massive labour shortage, we have too many vacancies and not enough active workers to fill them and a jobseeker’s market means a demand for higher wages, better perks and ultimately higher costs for employers.

With the country still facing the consequences of the EU settlement scheme, a nauseating number of our European friends have made the decision to reside back in their home countries, leaving the UK workforce on its knees. In announcing a new, high skill visa system, Sunak boasts that ‘levelling up’ will make it easier for businesses to bring “highly skilled individuals” back into the UK from overseas. In an attempt to “modernise” immigration, fast-track Visa’s will be accessible to applicants who pass a language proficiency requirement and have a high-skilled job offer from an eligible business with a salary of at least £33,000.

What Sunak fails to discuss however, is a “viable and attractive entry route for highly-skilled independent professionals and the self-employed who will play a significant role in helping the country as the economy continues to recover” (Tania Bowers, Association of Professional Staffing Companies). The government need a strategy to entice skilled workers into the UK – without it, these opportunities lie redundant. In addition, with a baseline salary of upwards of £33k, this scheme fails to address the shortage in lower paid labour that is draining vital industries such as construction and nursing.

The cost of living is increasing and subsequently, employment costs will follow. RSM UK suggest that following the increase in rates, businesses will need to consider:

  • the financial impact of the increased rates (and associated employers’ national insurance contributions (NICs), pension contributions and the health and social care levy;
  • whether it is possible to maintain ‘real living wage’ accreditation given increased costs and the current economic climate;
  • employee communications regarding the NLW and/or ‘real living wage’;
  • pay differentials for skilled versus nonskilled labour and whether pay bands/grades need to be revisited;
  • NMW/NLW compliance, as there is likely to be a limited pay buffer which can lead to technical breaches (relating to regulations governing time and attendance, uniform requirements, provision of living accommodation, deductions from pay etc);
  • union conversations/negotiations regarding pay rates/bands; and
  • reviewing salary sacrifice arrangements, given the potential increase of workers paid at or near the NLW/NMW.

Dharshini David, Global trade correspondence at the BBC suggests these figures ‘make clear that leaving the EU has heightened the UK's experience of the bottlenecks that are bumping up business costs, that in turn will lead to higher prices’. She continues to explain how ‘for workers, higher costs of living, together with looming tax rises will dampen the effect of wage rises over the next couple of years. Strip out inflation and the OBR reckons that household income after tax will only recover to pre-pandemic levels in mid-2023’

The above paints a sobering picture for the months ahead and highlights challenges that we aren’t confident are being tackled appropriately by government policy. Although there are certainly important steps being made that will contribute towards recovering our economy, the cynic in us feels like the private sector are simply picking up the the tab.

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