Show notes
Welcome to the first podcast in our Employments Insights series.
Today our employment experts Ian Pace and Rebecca Cairney discuss the mini-budget which was delivered in September by the former chancellor Kwasi Kwarteng, and the subsequent economic statement in October, which reversed many of the original proposals. We take a closer look at the so-called ‘bonfire of red-tape’ and what this might mean for employers.
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Transcript
Ian Pace: Hi, everyone. Welcome to employment insights. This is the first podcast in the series, which will be delivering regularly to discuss hot topics and employment law and what they mean for you and your business.
Ian: And today we'll be looking at the mini budget, which was delivered by the then chancellor Kwasi Kwarteng, on 23 September along with the economic statements made on 17 October by Jeremy Hunt, which then reverse many of his proposals.
Ian: My name is Ian Pace. I'm a partner in the employment team and I'm based in Manchester. I'm joined today by my North West colleague, Rebecca Cairney, who's a principal associate based in our Liverpool office. Hi there, Rebecca.
Rebecca Cairney: Hi Ian, how are you?
Ian: Yeah, good, Thanks. So we've heard a lot about the mini budget proposals and later on the economic statements in the news over the last few weeks and as you have known, we've received a number of queries from clients about how exactly the employment law may be affected and what exactly clients can expect over the next 12 months.
Ian: So given the differences in the statements, there seems to be quite a lot of uncertainty about what the current proposals actually are. I was wondering if you could tell us a bit more about that. And first off, what exactly is this 'bonfire of red tape' that we keep on hearing about?
Rebecca: Yeah so on her campaign trail, Liz Truss pledged to prioritize the review of retained EU law and to decide what should be kept and what should be scrapped. She promised as part of that a bonfire of red tape and a significant scale back of any EU regulations that were deemed not to support UK growth.
Rebecca: The day before the mini budget was set out, the government actually published the Retained EU Law (Revocation and Reform) Bill in the House of Commons. And, quite dramatically, this states that all retained EU legislation and EU-derived subordinate legislation will automatically cease to apply on 31 December 2023, which is a mechanism known as sunsetting, unless specific steps are taken to retain it.
Rebecca: So effectively, the Bill sets a deadline for the review. And then the retention or repeal of EU law currently in force in the UK. And if that Bill is passed by parliament, then any EU regulations that are kept on the UK statute books after 31 December 2023 will be assimilated law and will have the same status as other domestic legislation.
Ian: So in practice then, what does this mean for the current European case law and new European legislation?
Rebecca: Well, employment law in the UK is largely derived from European legislation. So for example, the Working Time Regulations which sets out our maximum working hours and rest breaks, implements the European Time Directive.
Rebecca: Our employment law also relies on the interpretation of employment legislation by the courts from the employment tribunal right up to the European Court of Justice. At the moment, our courts are bound to interpret employment law in line with decisions that have been reached by the European Court of Justice.
Rebecca: The Bill that was published in September, if it is passed by Parliament and becomes enshrined in our domestic law, will provide the domestic courts with greater discretion to depart from previous judgments of the European Court of Justice. And it will also specify that EU law will no longer take supremacy over UK law.
Rebecca: So if the bill is passed, it is unaffected by either the mini-budget or the economic statement unless it is specifically preserved before 31 December 2023.
Ian: OK, so assuming the bill is passed and this does become an act of parliament, it does become part of our law, what do you think the potential are for targets, for either reform or entirely repeal?
Rebecca: Well, we know a number of people in the current government. So, Liz Truss and Jacob Rees-Mogg, are both said to oppose the 48 hour limit on working time, which is currently set out in the Working Time Regulations. So that is something that might be repealed and could have an impact on things like rest breaks and holiday entitlements.
Rebecca: The second one I think could be holiday pay. So the current holiday pay regime is based on decisions that have been reached in the ECJ and that's currently seen as quite acomplex area and an area of focus to be simplified.
Rebecca: Thirdly, the Agency Worker Regulations. Again, they're perceived to be cumbersome and quite restrictive for employers, so that's an area that could potentially be targeted.
Rebecca: TUPE is another one where the government might look at restrictions on changing or harmonising contracts following a transfer.
Rebecca: And then finally, health and safety law. Again, this is largely derived from the EU law and sometimes perceived as onerous for employers. So there's a number of things to consider there, especially with health and safety, where there might be a kind of risk of increased danger to employees, for example.
Ian: OK so equality law, that's largely derived from European legislation. Now I know that the Truss administration, albeit short lived, they weren't planning to make any real sweeping changes to equality law at that point in time. Do you think that's really going to change with Sunak?
Rebecca: We don't have any definite plans at the moment, but it seems that the Sunak administration is not planning to make any sweeping changes to equality law at this stage. I think this, however, does remain a real concern for unions and other employee bodies because the UK's anti-discrimination regime is largely EU-derived and so is perceived to be at risk.
Ian: Right OK. So what other key employment changes were announced in the mini-budget?
Rebecca: So in the mini budget, we had an announcement in relation to IR35 and it was stated that there would be a repeal of reforms to IR35. However, since we've had the economic statement, this has since been reversed. And so the changes will no longer go ahead. So what this means really is that end user employers will need to continue to carry out status assessments for contractors engaged through personal service companies.
Rebecca: Secondly, we had national insurance contributions, so the recent 1.25% rise in national insurance contributions will be reversed with effect from 6 November 2022. So so that survives and the reversal will still go ahead as originally planned.
Rebecca: Thirdly, we have the creation of investment zones. So this would see employers in designated areas pay much lower or even none at all national insurance for many employees. However, we haven't had any further detail since the economic statement about these plans. So this is an area to watch, really. It remains live but as I say, we've still got very little detail as to what that's going to involve.
Rebecca: Then we do have potentially other tax changes. So the mini budget originally announced a 1% cut in the basic rate of income tax. That was to be brought forward to April 2023, which was 12 months earlier than initially planned. However, that has been reversed and the basic rate will now remain at 20% indefinitely.
Rebecca: The headline announcement perhaps is that it was proposed that the additional rate of income tax of 45% for employees earning over £150,000 would be abolished completely from that same date. However, as has now been widely reported, the government has reversed this decision and the current 45% rate will remain in place.
Ian: Yeah. That's been obviously a big headline, hasn't it? The other headlines that we've seen at the moment, particularly with potential tax rises, is the potential for a winter of discontent and increased industrial action. Is there any steer on that at all?
Rebecca: Yeah so as part of the mini budget, the then chancellor outlined further legislation that was intended to make lawful industrial action more difficult, and this all seems to remain in place. So the proposed actions include setting minimum service levels during industrial action to make sure critical infrastructure keeps running during a strike period. And the first steps have actually already been taken to introduce this with the new Bill having its first reading in the House of Commons on 20 October.
Rebecca: The second point on this was the raising of ballot thresholds. So that 50% of Union members would have to vote in favor of a strike. This would obviously make it much more difficult for a Union to obtain a strike mandate, but notably would not have prevented the recent RMT rail strikes from taking place.
Rebecca: Thirdly, a requirement for Unions to take all pay offers to a member vote. So this would ensure that strike action would only take place when negotiations have genuinely broken down. But obviously means potentially a lot more administrative work for the Unions.
Rebecca: Next, we have increasing the minimum notice of strike action that the Union must give employers from two weeks as it is currently to four weeks in order to give employers more time to prepare.
Rebecca: And obviously, these new measures follow closely onto the back of the controversial recent changes, which was the lifting of the ban on using agency labour to cover for striking workers and the fourfold increase in maximum fines that can be levied on Unions if industrial action is found to be unlawful.
Ian: OK, so I suppose really summarising then, I mean, the big one seems to be this whole bonfire of red tape. And it seems to me that the proposal to repeal all European law that is seen contrary to this objective, to increase growth that all remains subject to parliamentary approval. If it is approved, then what do you think we could expect?
Rebecca: The aim is growth for the UK essentially and it allows more autonomy in the UK courts if all EU law is repealed. It allows us to make the changes that the current government see as required in order to assist with that growth.
Rebecca: A lot of the proposals seem to be employer friendly, so all of those points on the industrial action, for example. So there's a lot of things going on at the moment that could have a real impact on employment law in the UK going forwards, I think.
Ian: I would hope that would all remain if they did go forward with the Act, usually the way it would work, it would go through to consultation in respect of what particular European legislation forms part of that review process. And you would hope that as part of the consultation review, there will be a decision made as to what stays in the box next to the bonfire and what becomes fuel for it.
Ian: It seems like it's a really tight deadline, obviously, with the end of next year being the deadline to put everything on that bonfire, particularly bearing in mind everything else that's going on in the world: the depression, challenges with cost of living crisis, the war in Ukraine, and obviously the rise in energy prices, particularly over the winter.
Ian: I noted when I was looking at the Bill, it does include a mechanism to extend the expiry date of specified pieces of legislation until 2026. So if the government departments require additional time, it can perhaps be put in that box next to the bonfire. So that's something maybe that's worth looking out for, particularly bearing in mind everything else that's going on in the world and taking up parliamentary time.
Ian: I think the one thing that stood out to me was the turnaround on air IR35. I think that's really going to be welcomed by employers, isn't it?
Rebecca: Yeah, absolutely. I think initially when IR35 was introduced, I know a lot of employers worked really hard to prepare for that and seemed quite frustrated by that abrupt policy change. So yeah, absolutely. I think that U-turn will be welcomed, as you say.
Ian: So as ever, the proposed changes to the law on industrial action and the right to strike, that's going to be particularly divisive. And we're going to see a lot on that, I expect, over the next few months. As far as I can see, it's currently unclear whether the proposals about minimum service levels are going to be confined simply to the transport networks, so as to prevent things like the rail strikes from taking place or whether that's going to apply more broadly across all sectors. So that's something to keep an eye out for.
Ian: There's further concern being raised about the requirement to put pay offers to employees, and that's going to simply double the administrative burden for employers as well as Unions, rather than meaningfully reducing the likelihood of any strike action.
Ian: I think all in all, though, with this focus on industrial action and the current economic climate, it seems to me that the scene is set for a conflict, particularly over what's expected to be quite a challenge in winter.
Ian: Looking forward then about this autumn budget, when can we expect to see that, Rebecca?
Rebecca: Yeah, so the autumn budget is now being referred to as an autumn statement and that will now take place on 17 November. So we can obviously do a further update once that's been announced.
Ian: Great OK. We'll look forward to catching you up with you after that. Thanks very much for your time today, Rebecca, and thanks to everyone for listening in today. As Rebecca has just said, we'll be following up on the autumn statements after 17 November with our insights into what that means for you and your business. So look forward to you joining us then. Thanks for listening.
Rebecca: Thanks, Ian.