In his second Budget of the year, Chancellor Rishi Sunak declared that the government is preparing for a new economy post-Covid; one that will consist of higher wages, skills and productivity. But will the spending and tax priorities set out today enable this vision?

Increased support for workers on low incomes

In line with recommendations made by the Low Pay Commission, today the Chancellor confirmed that minimum wage rates will increase by 6.6.% from April 2022, going from £8.91 to £9.50, for people over the age of 23.

While this is a positive step for workers facing rising costs of living, it is likely that we will see a substantial gap between the Real Living Wage calculated by the Living Wage Foundation and the new government minimum wage when new rates are published next week.

Additionally, the Universal Credit taper rate will be cut by 8%, meaning that for every £1 earned, the amount of Universal Credit paid to the claimant will be reduced by 55p, rather than 63p as is the case currently. Work allowances, which allow some people with limited capacity to work or responsibility for one or more children to earn a certain amount before their Universal Credit payments are impacted, will also be increased by £500. Reflecting the urgency of the situation, these changes are expected to come into place no later than 1st December.

It is positive to hear the Chancellor stating very clearly that the Universal Credit taper rate is a tax on employment, and these changes represent a significant investment, which will go some way to help those in working poverty. Nevertheless, following the recent withdrawal of the £20 per week uplift introduced at the onset of the pandemic, those on Universal Credit who are unable to work (including some disabled people, carers and parents of young children) now face a cost of living crisis without an appropriate level of support.

Furthermore, increased insecurity and temporary contracts mean that hourly pay rates will have to stretch further. As well as improving levels of pay, there should be a renewed focus from Government on improving job security.

A skills-focused budget?

Today’s Budget also announced significant increases in spending on lifelong learning, £170m for apprenticeships and training, and £550m for adult skills in England.

The Chancellor also announced a new £560m fund called Multiply, to increase numeracy and basic maths for adults in the UK. While the Chancellor’s recognition that ‘success depends on lifelong learning’ is welcome, further investment and work will be needed to offset historical reductions in funding to skills and breakdown barriers to taking part. As we highlighted in Learning to Level Up, take up of subsidised courses is limited by a range of factors including transport and childcare costs and stigma associated with low skill levels. Furthermore, with this fund only aiming to support up to 500,000 people, it is an unambitious start in tackling the scale of England’s numeracy problem.

Investment in the future workforce, as well as upskilling and reskilling the current working population, is essential to address critical skill gaps faced by many organisations, as well as for the UK to meet its goal of reaching net zero by 2050. While today’s commitments are a step in the right direction, it is likely that these funding announcements alone won’t allow us to achieve these ambitions.

Targeted sector-specific support

The Chancellor also announced funding targeted at sectors that have been significantly impacted by the pandemic, some of which are also currently facing recruitment crises. Businesses in retail, hospitality and leisure sectors will be able to claim a 50% business rates discount, up to £110,000.

However, as emphasised in our 2020 report, No Returns: A new direction to tackle insecurity in retail following COVID-19, it is important that support for the sector leads to material improvements in security, progression opportunities and terms and conditions for workers in the sector. We found that average pay is much lower than in other sectors, and estimated that around 900,000 retail workers wouldn’t qualify for any redundancy pay if they lost their job, and approximately 400,000 retail workers are ineligible for Statutory Sick Pay. Furthermore, new Work Foundation analysis of Labour Force Survey data suggests that there has been a 34% increase in women on temporary contracts in retail as of June-August 2021 compared with July-September 2019.

Despite various positive announcements in relation to the economy, welfare and skills, most are still likely to fall short of the scale of action required to tackle low pay, labour market insecurity and the skills gaps we are likely to face as we recover from the global pandemic, and in particular as major trends like the transition to net zero continue to re-shape the economy into the future.

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