Spring Budget 2023 and the impact on FS employers

In this year’s Spring Budget, Chancellor Jeremy Hunt set out the government’s growth plans, including to break down “barriers that stop people working”, to include targeted measures on childcare and pensions which encourage more people back into work.

Pension changes

The Spring Budget 2023 has announced that the Chancellor is abolishing the Lifetime Allowance and raising the limit of the Annual Allowance. The effect of these measures is that higher earners who previously were both restricted in the amount they can pay into a pension during a particular year (currently £40,000) and whose pension funds were capped during their accrual over their lifetime (the current standard being £1,073,100) will no longer have these restrictions over their pensions.

For FS employers, as a result of these changes, more senior employers may choose to participate in the workplace pension scheme and do so for a longer period. This may mean that employers have increased costs by way of their increased contributions into workplace pension schemes, but also have another avenue through which they can incentivise their employees.

Expansion of free childcare services

The Spring Budget addresses new measures in relation to the expansion of free childcare services, including the following:

  • Addressing the 435,000 people in England with a child under 3 who are inactive due to their caring responsibilities by, from April 2024, providing 30 hours a week of free childcare for 38 weeks a year for eligible working parents of children aged 9 months to 3 years.
  • In 2023-2024 providing £204 million, and in 2024-2025 providing £288 million, in order to uplift the hourly funding rate paid to providers to deliver the existing free hours offers in England.
  • Launching a new wraparound pathfinder scheme to support the expansion of school-based childcare provision either side of the school day

FS employers may, particularly as a result of the childcare support for those working parents of children aged 9 months to 3 years, see an increase of experienced and skilled labour by those skilled workers perhaps not taking a career break while their children are in this age range. Alternatively, in the event that your employees may not be eligible for this benefit (as it should be noted that the working parents need to be earning less than £100,000 to qualify), FS employers may want to look into an equivalent benefit that they can provide to their employees.

EMI option scheme changes

A common benefit given to employees by FS businesses is an EMI option scheme for employees to enter into in order to become part of the growth of the business and benefit from it through the exercise of ‘options’. EMI option schemes also have tax benefits for FS businesses.

The Spring Budget announced that from 6 April 2023, certain requirements will be removed.

  • The company will not have to set out within the EMI option agreement the details of any restrictions on the shares to be acquired under the option.
  • The company need not declare that an employee has signed a working time declaration when they are issued an EMI option (although it does not remove the working time requirement itself).

As EMI option schemes become more popular for FS businesses, it seems that these changes will remove certain administrative burdens for FS businesses in the set up of these schemes for their employees.

What does a FS business need to consider in the wake of the announcements in the Spring Budget?

Generally, the developments announced, particularly in relation to childcare, may lead FS businesses to consider their benefits and how they relate to a wide range of their workers. FS employers are required to report on their Gender Pay Gap and if they can make their benefits more parent-friendly and neutral in respect of how they treat both maternity leave and paternity, these aspects drawn together can help to ensure they are attracting the best talent to make their business more profitable and sustainable, and also comply with regulatory requirements to report.

The update to the EMI option schemes may serve as a reminder that these schemes are available and becoming less of an administrative burden to FS companies looking to have their employees participate positively in the growth.

If you would like to discuss these updates in more detail with one of our FS team, please get in touch.

Alex Harper
Senior Solicitor, Employment
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This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.

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