What employers can expect from the Labour Government

In the second article in our series on what taxpayers can expect from the Labour Government, we explore what employers can expect to see on tax policy.

As set out in our main business tax article, this series of articles is based on the contents of the Labour manifesto as the most reliable indicator of the direction of travel under the new Government. However, as the manifesto was light on detail on tax, we also explore previous statements from the Labour party that – although they did not make it into the final manifesto - may provide insight into what to expect on employment tax.

National Insurance became a focal point in the General Election campaign, with the Conservatives pledging to build on their recent cuts in the rates of Employee and Self-Employed National Insurance Contributions (NIC). Their offer was to abolish the main rate of Self-Employed NIC by the end of the next Parliament and cut Employee NIC by a further 2 percent by April 2027, with a longer-term view to abolish it entirely.

This in turn put pressure on Labour to set out explicit commitments on NIC. Labour rejected cutting or abolishing NIC; instead it included a simple manifesto statement saying it would not increase National Insurance. Given Labour’s consistent messaging that it thinks taxes on working people are too high and it wants to lower them when fiscal conditions allow, we expect this pledge to apply to Self-Employed and Employee NIC. There is some debate around whether or not the commitment includes Employer NIC. In the absence of further statements from Labour to the contrary – and given the party’s focus on growing the economy and productivity - it remains the working assumption that the pledge covers all NIC. However, employers will be keenly watching for announcements in this area. 

Labour has been clear that it intends to reform the existing Apprenticeship Levy. The manifesto says that the current rigid rules ignore vital skills and training needed to access apprenticeships, and pledges a more flexible Growth and Skills Levy, with Skills England consulting on eligible courses to ensure qualifications offer value for money.

No further detail was provided in the manifesto, but during the Election campaign Labour explained its plans would involve allowing businesses to use up to 50 percent of their Levy contributions to fund training routes other than apprenticeships. For example, employers could choose to spend the money on ‘high-level technical skills’ such as retrofitting or engineering. They could also offer ‘pre-apprenticeship’ training courses to prepare people for full apprenticeships. Labour said that any courses will need to be from an approved list of essential skills, which could include areas like digital and green skills, social care or childcare and that businesses would not be able to use it on internal training such as HR or health and safety. Labour said that if businesses used just 3 percent of the additional flexibility, it could generate 150,000 traineeships for young people.

A minimum of 50 percent of the Levy would still be reserved for apprenticeships. A Labour spokesperson previously said there were no plans to increase the rate of the existing Levy (currently set at 0.5 percent of an employer’s total annual pay bill, where this exceeds £3 million).

As Labour views skills as central to its mission to grow the economy, this reform is being treated as a priority area: we may hear more on this in the King’s Speech which, at the time of writing, has yet to take place.

Please note that this policy may not be applicable across the entire UK. Since apprenticeships and training are devolved matters, the funds from the Levy have been transferred to the devolved nations as part of the grant allocated through the Barnett formula. Consequently, the devolved nations have had the discretion to allocate these funds beyond just apprenticeships. The extent to which a reform of the Apprenticeship Levy impacts the current arrangements outside of England remains to be seen. 

The manifesto pledges to review the parental leave system so it best supports working families. No further details were provided, but the manifesto specifically says that Labour will conduct this review within its first year in Government.

Although not necessarily targeted solely at working parents, they could also benefit from the manifesto pledge to open an additional 3,000 nurseries through upgrading space in primary schools, to deliver the extension of Government funded nursery hours that families are entitled to.

Aside from certain tax reforms to pay for its manifesto pledges, Labour’s main message during the Election campaign was one of stability and continuity on tax. With that in mind, we would expect Labour to comment in due course on employment tax consultations launched under the Conservative Government.

In particular the recent Occupational Health consultation would be a natural fit with Labour’s drive to tackle economic inactivity and boost growth – for more details on this see our article Are tax breaks for employees’ occupational health services on the way?. See also our articles on other extant employment tax consultations: How would you make ‘all employee’ share plans better?; Umbrella company consultation: is your labour supply chain tax compliant?; and Are changes ahead for employee trusts? 

Whilst many employers will welcome Labour’s flagship employment tax announcement of reforming the Apprenticeship Levy, as always, the devil will be in the detail. There is also uncertainty in other key areas of tax that will be of interest to employers - our article on what individuals can expect from a Labour Government in particular discusses reform of the non-dom regime, carried interest and pensions.

The new Chancellor Rachel Reeves will deliver Labour’s first Budget in autumn this year (the exact date will be announced in the next few weeks), so employers will still have a few months to wait until more is revealed.

For further information please contact:

• Mike Lavan