The CIPD Budget response: jobs, the moratorium on employment regulation for small firms and pension reform

24 Mar 2011 10:14 AM

Dr John Philpott, chief economic adviser at the Chartered Institute of Personnel and Development (CIPD), comments as follows on yesterday’s Budget:

“Although by introducing a fiscally neutral budget the Chancellor reiterated that he will stick to his fiscal Plan A whatever the short-term pain this will cause, the enthusiastic almost Lawsonesque tone of Mr Osborne’s initiative packed statement – with its very business friendly ‘plan for growth’ – matched the sunny spring weather in Westminster. Households looking for some relief from the impact of high fuel prices may also be feeling a little sunnier. However, the accompanying forecast from the Office for Budget Responsibility (OBR) shows that the various clouds over the UK economy will darken before things start to look better.

“The OBR has cut its forecast for economic growth in 2011 from 2.1% to 1.7%. Unemployment is now expected to rise by around 100,000 this year before peaking at 8.2% (2.6 million), while price inflation will easily outstrip average pay increases until 2013. These forecasts have moved closer to the economic outlook for 2011 published by the CIPD following Mr Osborne’s first budget last year, but still look very optimistic for 2012 onward and may well have to be revised further downward in due course.

“In particular, the OBR and the Chancellor remain upbeat that investment and exports will drive the economy forward and more than compensate for the triple squeeze on domestic spending caused by continued tight credit conditions, fiscal consolidation and the impact of the current spike in price inflation on real incomes. This view looked optimistic but plausible when the Chancellor published his first budget. In today’s climate of mounting domestic and global economic uncertainty, it looks more optimistic and less plausible regardless of the warm words of support the budget is likely to receive from the business lobby. The UK might in due course witness what Mr Osborne calls the ‘march of the makers’ but the initial steps will almost certainly be tentative.

“Set alongside the OBR figures, Mr Osborne’s ‘pain today, growth tomorrow’ budget reads like a long-term fitness plan for an economy whose immediate pressing need is for more sensitive intensive care than the Chancellor is prepared to provide. If the economy remains robust enough in the short-term to take full advantage of the Chancellor’s battery of mostly sensible micro measures, this year’s budget might in time come to be viewed as a milestone on the road to supply side reform. But the risk remains that by applying too much short-run fiscal pain to a still ailing economy the Chancellor will at best reduce the effectiveness of his long-term plan for growth and at worst inflict chronic damage that might take a decade or more to recover from.”

Katerina Rudiger, CIPD skills adviser, also comments on the provisions to deal with youth unemployment through increased apprenticeship funding, creation of technical colleges and more investment in the work experience scheme:

“It is more important than ever for the Government to invest in the right skills to aid economic recovery. The increased workplace-based training funding, especially for 40,000 extra apprenticeships, will allow British businesses to grow and become more competitive through their people. The focus on highly skilled trades, also through the creation of 24 new technical colleges, is a welcome step in the right direction as more needs to be done to improve the quality and reputation of the vocational education on offer for young people.

“On top of this, the increased funding of work placements for young people is an efficient way to target youth unemployment, helping to break the vicious circle of no experience/no job and give young people an opportunity to develop and demonstrate the skills and commitment employers need. The CIPD is already working with government to facilitate HR professionals playing an active role in making a reality of these ambitions.”

Mike Emmott, CIPD employee relations adviser, also comments on the moratorium on employment regulation for small firms:

“We are concerned about the moratorium on all new employment regulation for small firms for three years. The onus should be on government to bring forward only light-touch employment regulations that do good, not harm – irrespective of company size. A moratorium for the smallest firms is a dangerous precedent that risks creating a two-tier labour market, and could even at the margins act as a perverse disincentive for growth amongst firms considering employing the extra staff member that would bring them into the ‘regulated tier’ of the labour market.”

Charles Cotton, CIPD reward adviser, also comments on the universal flat rate pension of £140 per week:

“Good employers will welcome the clarity a universal flat-rate pension will bring. So long as employees have little idea of what the state will pay them in retirement, it will always be difficult for employers to focus minds on the value of the pension schemes they offer.
Employers are investing vast sums in workplace pensions, but all too often our research shows employees don’t appreciate the value of this investment. One factor is undoubtedly the confusion and widespread ignorance created by the complexity of the existing state pension arrangements.

“This new flat-rate approach to state pensions will make it far easier for employers to communicate the value of their workplace pension provision – which in turn should nudge employers with weaker pension arrangements to improve what they offer.”