01 November 2021
The CIPP’s policy and research team recaps the key Budget announcements that payroll professionals need to be aware of
On 7 September 2021, HM Treasury announced that chancellor of the exchequer, Rishi Sunak would be delivering his second Budget of the year on 27 October 2021.
The policy team waited with bated breath to see what would be announced, but, in typical fashion, rumours circulated, and we were given a clear indication of what some of the headline announcements would be ahead of the big day.
This was not without the chancellor being reprimanded (and having to apologise at the outset of his speech) for alleged leaks, by the speaker of the house.
Grab a cup of coffee and let us guide you through the all-important information that will impact the work of payroll professionals up and down the UK.
National Living Wage (NLW) / National Minimum Wage (NMW)
Remember the worst kept secret of the Spring Budget 2021 – the extension of the coronavirus job retention scheme (CJRS)?
Well, the news regarding the change to the NLW could easily rival this, if not trump it.
In the week leading up to the Budget, it was confirmed by a variety of media sources that the NLW would increase by a staggering 6.6% for pay periods commencing on or after 1 April 2022, to £9.50 per hour. This aligns it with the real Living Wage (for the UK, outside of London) figure that was implemented in November 2020.
Following the lowering of the age of those eligible for the NLW from 25 to 23 in April 2021, the government also intends to reduce it even further, extending it to everyone aged 21 and above by 2024.
In the documents accompanying the Budget, the other NMW rates were confirmed, and, of note, is that, from April 2022, the apprentice rate will match the 16–17 year old rate.
The table below shows a breakdown of the current and future rates, and expresses the increases as percentages.
Public sector pay
One of the other key areas of interest we had notification of prior to the Budget related to impending changes to public sector pay. Within the 2020 Spending Review (SR), it was confirmed that there would be a temporary freeze on the pay of certain public sector workers due to the impacts of coronavirus. Given that the economy is gradually returning to some sort of normality, this freeze will be lifted.
Over the next three years, public sector staff will be entitled to wage increases, which will broadly mirror those received in the private sector.
Pensions net pay anomaly
The chancellor did not provide a great deal of information relating to pensions directly within the Budget speech.
However, a response to the call for evidence (CfE) which centred on the administration of pensions tax relief was published on the same day. The CfE addressed the issue that arises when pension contributions are taken via a net pay arrangement (NPA) pension scheme, and so are deducted from gross pay.
The current tax threshold is £12,570, whilst the automatic enrolment (AE) threshold applies to earnings that exceed £10,000. Anyone receiving between £10,000 and £12,570, therefore, will not receive the pensions tax relief they would have gained in a relief at source (RAS) scheme. This is because, in a RAS scheme, pension deductions are taken from net pay, and the pension provider reclaims tax relief from Her Majesty’s Revenue and Customs (HMRC).
The CfE looked at how this problem should be tackled, and the response paper confirms that anyone impacted by the NPA anomaly from 2024/25 onwards will be paid a ‘top-up’ bonus to align saving outcomes with equivalent savers using the RAS method. The payments will be calculated and paid out following the end of each tax year.
State pensions triple lock
The state pension is expected to rise every year in line with the ‘triple lock’ guarantee; that is, it will increase by whichever is highest of the Consumer Price Index (CPI), wage growth or 2.5%.
However, it was confirmed on 7 September 2021, that for the year 2022/23, the ‘triple lock’ would be suspended. Instead, there would, in effect, be a ‘double lock’, meaning that state pension would rise by the higher of CPI or 2.5%. This is because the introduction of the CJRS and large numbers of individuals being on furlough and subsequently returning to work has led to distorted earnings data, which could push the state pension to such a high figure that it could place unrealistic economic pressure on taxpayers.
At the time of writing, it is assumed that the ‘triple lock’ will return for the year 2023/24.
Income tax rates and thresholds
In the Spring Budget 2021, held back in March, it was confirmed that the tax figures for England and Northern Ireland would be frozen for the next four years. This means that the personal allowance for tax-free income for 2022/23 will remain at £12,570 and the higher rate threshold (HRT), which is the point at which higher earners begin to pay 40% tax, will stay at £50,270.
Devolved income tax
The Scottish Government sets its own income tax rates and thresholds for Scottish taxpayers. An announcement has been made that the Scottish Budget will be published on 9 December 2021, so we will have further detail in that area before the end of 2021.
The Welsh Government can vary income tax rates for Welsh taxpayers, although to date, they have been set at levels that keep them aligned with English and Northern Irish taxpayers. The outline draft Welsh Budget will be published on 20 December 2021.
National Insurance (NI) increases
We have known since September 2021, that NI contribution (NIC) rates are due to increase by 1.25% in tax year 2022/23, to provide additional funding for the National Health Service (NHS) and to contribute towards adult social care.
From tax year 2023/24 onwards, the NICs rates will revert to those in place for 2021/22, and the 1.25% charge will be ringfenced out into a separate health and social care levy. More detailed information on what we know so far can be located on page 50.
The government will use the September CPI figure of 3.1% to uprate NI limits and thresholds, and the rates of class 2 and 3 NICs for 2022/23. This does, however, exclude the upper earnings limit and upper profits limit, which remain unchanged so that they stay in line with the HRT for income tax at current levels.
Universal Credit (UC)
The chancellor saved the announcement regarding UC until the very end of the day’s speech, confirming that the taper applicable in UC would reduce by eight percent, from 63% to 55%. This was to be implemented, not in line with the traditional timeframe for changes of the following tax year, but by no later than 1 December 2021. What this effectively means is that claimants will get to keep an additional eight pence per every pound of net income they receive.
The amount that households including children or someone with a decreased ability to work can earn prior to the amount of UC they receive begins to decrease has been increased by £500 per year. This is referred to as the Work Allowance.
Additionally, the UC surplus earnings threshold will be extended, so that the temporary increase to £2,500 introduced during the pandemic will remain in place until April 2023.
We knew, prior to the Budget, that payroll professionals were going to be exceptionally busy over the next few years, in part due to the changes that will be brought about by the introduction of the new health and social care levy.
The announcements relating to the increases to the NLW / NMW, public sector pay rises and an anticipated growth in inflation (to an average of 4%), which could impact on salary increases, will mean that payroll departments are also kept busy updating systems and checking employees are paid both accurately and on time. Teams will need to ensure that they adhere to complex NMW legislation when processing payroll.
The CIPP is eager to see how the proposed solution to the pensions net pay anomaly will work in practice and is also left wondering if there will be an imminent announcement on student loans. This is due to the speculation that the Plan 2 threshold was going to be reduced quite significantly and also because the Plan 1 threshold for tax year 2022/23 has been confirmed, but the Plan 2 and Post Graduate Loan (PGL) thresholds currently remain a mystery.
Whatever happens, the CIPP’s policy and research team will be here to keep you updated at every stage.
|Current||From April 2022||Increase|
|NLW (23 years+)||£8.91||£9.50||6.6%|
|21-22 year old rate||£8.36||£9.18||9.8%|
|18-20 year old rate||£6.56||£6.83||4.1%|
|16-17 year old rate||£4.62||£4.81||4.1%|
|Current||From April 2022||Increase|
Featured in the November 2021 issue of Professional in Payroll, Pensions and Reward. Correct at time of publication.