The Budget isn’t normally the channel for introducing change in, or specific to, the public sector. This said, the sector has an interest because the employment taxes changes announced (and the VAT ones) will have an impact. The 1% increase in employer NICs will clearly represent a major additional cost to the public sector. Any such costs have to be seen in the context of the measures already forced on the sector due to required budgetary cuts.
The Spending review in October 2010 contained a series of hard hitting budget cutting measures which are now having an impact on all aspects of the public sector.
In his Budget speech, the Chancellor commented that these cuts are now having the expected impact.
The findings of the Hutton report has also had an impact on the Public Sector.
Lord Hutton's independent review recommends a number of radical reforms to public sector pensions which could see middle and senior managers receiving a lower pension than expected. The review recommends that pensions should be linked to career average earnings, rather than workers' final salaries which will generate huge savings for this sector. Those hardest hit is likely to be middle and senior management and other classes of employees who experience relatively sharp increases in salary.
Summary of the Hutton report findings
There were no great surprises in the Hutton Report as many of its conclusions had been heavily trailed in the interim report last year. The main changes suggested are:-
- Member contributions to final salary schemes will have to increase in the short term;
- Existing final salary pensions should be replaced with pensions based on revalued career-average earnings;
- Normal retirement ages are to be increased, so members will have to work longer. It is further proposed that scheme retirement ages stay in line with State Retirement Age as this increases, and there are already plans for this to reach 68 in the longer term.
It should be remembered that this is only a report at this stage, as opposed to draft legislation. However, there seems widespread support for the proposals within Parliament so we would expect to see draft legislation on these issues in the near future.
Click here to view the recommendations from the Hutton report.
To read the Hutton report in full click here.