The Budget, revealed on 30 October, has received a mixed response. There is no doubt that business will carry the biggest burden of taxation. But what does it mean for ECA Members, and are there any silver linings?
The Chancellor’s commitment to invest in industry, housing and electric transport is welcome. All areas which will generate opportunities for ECA Members. Public capital investment should help unlock private investment in our infrastructure and low carbon technology. But is it all jam tomorrow?
Education is a winner.
Underpinning business growth for our sector is a pool of enough skilled workers. Members have told us how the lack of competent workers and shortfalls in apprentice training are an impediment to their business ambitions. We have been pressing the new Government since they came into office to listen and act on Member concerns.
There is no doubt that education, and Further Education (FE) in particular, was a winner in this budget. We welcome the £40 million investment to transform the Apprenticeship Levy into the Growth & Skills Levy in so far as this moves the emphasis away from Masters’ degrees towards trade apprenticeships. These steps align with ECA’s call for a skills system that delivers on the practical needs of integrating low carbon technologies for net-zero.
The Chancellor also delivered a £300 million boost for FE to support skills development. Clarity on allocation remains essential: independent training providers have a crucial role to play, alongside good FE colleges. Skills England must take a firmer grip to ensure this funding boost leads to better learner outcomes.
As outlined in our Charter to Recharge Electrical Skills, a system responsive to local and future demand is essential. Equally important is industry’s role in shaping pathways and qualifications that lead directly to employability.
However, this budget lacks crucial detail on how it will support skills access for smaller firms, which make up 99% of the electrical contracting sector. These businesses will now also carry the higher burden of Employer National Insurance and higher apprentice costs.
A bitter pill to swallow
Member firms will have to find an additional 6.7% to cover The National Living Wage for over-21s. This is more than treble the current inflation rate, taking it to £12.21 per hour.
The National Minimum wage for 18-20-year-olds had the biggest increase on record of 16%, hitting £10 per hour. This steep increase to the 18–20-year-old rate is likely to continue as the UK Government work towards a single-adult rate. This will be phased in over time to eventually equalise pay for under-21s.
The 18% increase to the apprentice rate follows a 21% boost in 2024. This means JIB apprentice rates, which are currently being reviewed, will need to increase substantially in order to keep pace.
Growth in the National Living Wage rate generally raises the bar for all workers. This is complicated however by the likely downward pressure on wages after employer National Insurance increases.
The Chancellor committed to raising an extra £40bn in taxes, with the majority (£25bn) being raised through an increase in employer National Insurance contributions. This will be achieved through an increase in the rate from 13.8% to 15%. And by a reduction in the earnings threshold at which employers start paying, from £9,100 a year to £5,000 a year starting in April 2025.
There is some countervailing support for small businesses, through an increase to the Employment Allowance from £5,000 to £10,500.
A drag on wages
The Office for Budget Responsibility (OBR) suggests that three quarters of the impact of employer NICs will be felt by employees by suppressing the overall rate of employment by 50,000 by 2029-30. The OBR has downgraded projections for real household income through lower wage growth. The IFS report it will cost 5.4% more to employ someone on £11,500 a year compared to 2.5% for a median earner. This increasing cost could potentially lead employers to engage more of the workforce on a ‘self-employed’ basis.
Workers’ rights
Implementation of Labour’s plans to upgrade workers’ rights through various measures, including enhancing sick pay and day one employment protection rights like unfair dismissal, comes at an estimated cost to businesses of £5bn a year. This all adds up to an increasing cost of employment to employers throughout the UK, which SMEs in particular may struggle to sustain. The Government has been keen to reassure employers that the changes funded by these costs will produce a more productive and settled workforce over the longer term. Increased taxes are justified on the grounds that NHS waiting lists will become shorter. Increased public investment is promised – leading, it is claimed, to higher levels of economic growth.
Pressing the case for Member firms
ECA will continue to press the newly formed Skills England to listen to Member concerns about waste in the education budget, including unsuitable bootcamps and dead-end classroom-based electrical courses. In Wales, our new Skills Charter – developed by Welsh members and due to be launched in the Senedd later this month – will similarly advocate for a stronger industry and influence over skills policy and funding. By advocating for reallocation of scarce resources to apprenticeships and other recognised training routes, we are offering industry solutions to a fragmented and broken skills pipeline.
In the months ahead, ECA will also be making the case for our Members’ needs to be recognised in the development of the Industrial and Trade Strategy and its complementary Small Business Strategy Paper.
The bigger picture
Labour’s wooing of the business community, both in opposition and now in power, demonstrates how much Government needs business. This budget will cause a great deal of pain to the business community. Nevertheless, ECA can and will continue to make the case for policies which have the potential to increase productivity and investment that might in turn unlock economic growth over the longer term. If we and others who are arguing for these same policies succeed, then there may, at least, be some light at the end of the tunnel.