Osborne unveils changes to state pension age and employer NICs for under-21s
Chancellor George Osborne today heralded a “job-rich recovery for all” when he outlined the government’s future economic plans in the Autumn Statement.
Key announcements included earlier than expected plans to increase the state pension age to 68 in the mid-2030s and to 69 in the late-2040s. Under a new rule unveiled today, the state pension age will vary according to average life expectancy, so that people spend no more than a third of their expected lifespan drawing a pension. This will be reviewed every five years.
In addition, the personal tax allowance will go up to £10,000, meaning that a typical basic rate taxpayer will pay £705 less income tax per year compared to 2010-11.
Continuing the coalition’s push to address high levels of youth unemployment, the chancellor also announced plans to require any young person aged between 18 and 21 to undertake training from their first day of claiming benefits, or lose their entitlement. Those who are unemployed for more than six months will be forced to start a traineeship, find work experience or do a community work placements to retain their benefits.
In a further move in this vein, the coalition announced that employer National Insurance Contributions (NICs) would be removed on 1.5 million jobs for young people aged under 21. There will also be funding for an additional 20,000 Higher Apprenticeships over the next two years.
Katerina Rudiger, head of skills and policy campaigns at the CIPD, broadly welcomed the measures designed to support youth employment, but warned that waiving employer NICs would have to be done carefully to avoid disadvantaging other age groups in the labour market. She said: “If handled in the right way it could help some organisations, particularly SMEs, overcome the negative perceptions they may have held about hiring young people.”
John Longworth, director-general of the British Chambers of Commerce added: “This measure will encourage many businesses to take on young people, as it will help reduce risk and cover the costs of the additional training that under-21s so often require in the workplace.”
But he cautioned: “We would urge the government to consider some sort of taper, so that we avoid seeing people who are hired at 18 or 19 let go when they reach 21.”
Osborne’s confirmation that the state pension age would increase attracted criticism from unions, however. General secretary of the Public and Commercial Services union Mark Serwotka said: “This will condemn millions of people to work until they drop and will effectively mean poorer people with lower than average life expectancy will pay for the pensions of the rich.”
The CIPD’s performance and reward advisor Charles Cotton noted: “As the state pension age rises, company pension plans will become even more important to employers as a tool to help employees transition from employment. As the workforce becomes more age diverse, the workplace needs to adapt how it manages, develops and rewards people over a working life that could last over 50 years.”
The Office for Budget Responsibility (OBR) also revised its forecasts regarding employment levels for the coming years today. As well as a higher than previously predicted rise in gross domestic product of 2.4 per cent next year, the OBR predicts that unemployment will fall from 7.6 per cent in 2013 to 7 per cent per cent in 2015, and drop to 5.6 per cent by 2018. It also expects an additional 400,000 jobs to be created in 2014, compared with original estimates.
However, CIPD chief economist Mark Beatson pointed out that the UK’s productivity performance remains poor, commenting: “The impact of growth on reducing the fiscal deficit is welcome, but we need to do more as a nation to address our management deficit. The increases in productivity needed to fuel sustainable prosperity can only be delivered if we get better at managing and developing the people employed in our businesses.”