What Darling’s pre-Budget report means for reward

The Chancellor’s pre-Budget report contained a number of measures that will affect reward and benefits. Nicola Sullivan spells out the planned changes

Chancellor Alistair Darling’s pre-Budget report last month will no doubt be remembered for its measures on bonuses, pensions and public sector pay. But such headline items may have overshadowed other changes, such as the decision to remove the tax exemption for workplace canteens when it is used in conjunction with salary sacrifice or flexible benefits schemes. The exemption will continue to apply for subsidised canteens that are available to all staff.

Lesley Fidler, tax director at Baker Tilly, said too much legislation on workplace canteens could cause confusion: “The difficulty has been how something that somebody opts for can somehow fit within the exemption that, to exist, has to apply to everybody.”

Changes that generated more publicity included making employer-paid pension contributions count towards the definition of income for the higher-rate tax measure for those earning more than £150,000 a year. Restrictions on tax relief for staff earning £150,000 or more will now be extended to some earning £130,000 or more. Jane Beverley, head of research at Punter Southall, said: “This will discourage employers from offering pensions, so it does not seem a sensible long-term proposal.”

Bankers’ bonuses

Bankers’ bonuses also came under the spotlight after it was announced that awards amounting to more than £25,000 would be subject to a one-off 50% tax. Ben Barrat, head of talent acquisition at Alexander Mann Solutions, said: “Any restriction on bonuses is going to have an impact on employee retention. Businesses that can afford to go the extra mile might increase the bonuses they offer to compensate for any one-off tax. Companies that are now essentially part-owned by the state either cannot afford to do this, or no longer have the authority and need to be creative with the packages they offer in order to retain top performers.”

In the public sector, the government will seek to ensure a 1% cap is put on basic pay increases in 2011-12 and 2012-13, generating savings of £3.4 billion a year by 2012-13. Gillian Hibberd, corporate director (people, policy and communications) at Buckinghamshire County Council, said: “Some roles in the public sector are paid incredibly poorly. There is a misconception about public sector pay we really must get to grips with. It is in no one’s interest to artificially restrain pay in the sector. We have the challenge of attracting people into some of the most difficult jobs in the country.”

State-funded contributions to public sector pensions will also be capped by 2012 and those earning more than £100,000 will contribute more.

Measures affecting reward in the pre-Budget report are:

  • Bankers’ bonuses of more than £25,000 to be subject to one-off 50% tax.
  • Employer pension contributions to count towards definition of income for staff earning over £150,000 a year.
  • Restrictions on tax exemption for workplace canteens when used in conjunction with salary sacrifice or flexible benefits plans from April 2011.
  • Electric cars exempt from company car tax for five years.
  • From April 2012, a 10% band for company car tax will apply to cars emitting 99g/km of carbon dioxide or less.
  • Public sector pay settlements capped at 1% from 2011.
  • Public†sector pension contributions to be capped to come in line with private sector.
  • Increase to all rates of NI by 0.5% from April 2011.
  • Full introduction of personal accounts delayed to 2017.
  • Level at which people start paying 40% tax to be frozen for a year from April 2012.