Two days ago George Orborne, Chancellor of the Exchequer, revealed what the papers have dubbed the ‘Wallace and Gromit’ budget. No mention was made to cheese, crackers or close shaves but there was a degree of economic inventiveness that Wallace would have been proud of. My post comes to you today having given you time to digest the proceedings, and will cover what I believe the implications of the budget to be for the recruitment industry.
Firstly, looking at what matters to those of you who run recruitment businesses you have the reduction in top rate tax from 50% to 45%. George Freeman, Conservative MP for Mid Norfolk, asserts that “lower marginal rates of top tax actually increase pay for themselves many times over by incentivising enterprise, job creation and economic growth by entrepreneurs.” I am inclined to agree. The revenues brought in by the 50p tax were marginal at best so this change is really nothing more than symbolic, but a powerful symbol nonetheless. Those of you earning £150k or more will still have the chance to defer the change in tax to 2013/14 so, now, it does seem like the government is ‘on your side’ and any move that works to leave you with more cash in your pocket will inevitably make working in the UK a more attractive option. This will be especially significant for Executive Search and other sectors with high-end wage packets.
In terms of the impact of the budget on recruitment businesses there are three things that are cause for smiles. 1) 2% drop in corporation tax, 2) tax relief for the creative industries and 3) new improved Enterprise Management Incentive.
1) We are already seeing the positive effect of this as GlaxoSmithKlein have announced plans to build a new plant creating thousands new jobs. Recruitment agencies will be the organisations that GSK turn to, to fill this demand. I am sure this is no one-off, so now is the time to sharpen up on your bid management processes.
2) This reform is still in its early days as the manifestation of the tax relief is yet to be announced. What we do know, however, is that coupled with the burgeoning digital industry that is so inextricably linked, agencies operating within this sector need to make sure they are well positioned as the experts in filling the inevitable growing demand.
3) Deloitte writes that the EMI options “will continue to be one of the most efficient ways to incentivise employees”. Even if this does not apply to your recruitment business it is essential you are aware of the EMI’s implications because it could turn out to be the deciding factor in a number of your future placements.
Linda Yueh, Fellow in Economics at Oxford University and Adjunct Professor of Economics at the London Business School, frames the whole situation best, stating how “In economists’ parlance, it’s a shift of tax from wages that could disincentivise work to a tax on assets that have less of an effect”. That said, the real question for those of us deal with the recruitment industry on a daily basis is how will the budget affect the job market? As it stands the Office for Budget Responsibility expects the unemployment rate to rise by 0.3% in 2012. So we have months before we start to see increasing demand for workers translating into a falling jobless rate. What we need to see more of are the barriers to business creation being broken down. The measures that I have alluded to above are a step in the right direction, but how long before they kick in is anyone’s guess. In the meantime it is organisations like Hamilton Bradshaw who are well-placed to advice and aid business growth.
I would like to end this post on a quote from Matthew Sinclair, Director of the Taxpayers Alliance, focusing on the budgetary developments for business who says that they will “improve the incentive to invest, innovate, and therefore drive opportunities for jobs and wages over time”. So many other economic influencers have to go right for this statement to become true, especially fiscal stability across the Eurozone, but I for one certainly have high hopes.
Are there any particular aspects of the budget that form a major concern to the growth of your recruitment business or the recruitment businesses you work with?
All comments welcome.