More campfire than bonfire? Employment law and IR35, what now?

In late September, we wrote a blog, ‘A “bonfire of workers’ rights” or a policy for growth: What next for employment law and IR35’ detailing the many changes that Liz Truss and her new cabinet proposed to make.

A mere few weeks later and Ms Truss has resigned as Prime Minister, Rishi Sunak has taken her place and only one employment-related economic proposal from the mini-budget remains along with the controversial Retained EU Law (Revocation and Reform) Bill.

We take a look at what this means for the employment law landscape.

The mini- Budget tax reversal

On 17 October, the new Chancellor of the Exchequer, Jeremy Hunt (who has retained his position in the Cabinet under the new Prime Minister) announced an almost total reversal of the various tax-related announcements made at the mini-budget on 23 September:

• the only employment-related measure that is confirmed to have stayed in place is the reversal of the recent national insurance rate increase with effect from 6 November.
• there has been a reversal to the plans to repeal the IR35 reforms. While this will save the additional cost and resources that would have been necessary to implement a change in procedure, it does little to promote ‘a simplified tax system’ and leaves the burden with end users.
• the mini budget proposals to reduce the basic tax rate of income tax to 19% and to remove the 45% additional rate of income tax have now also been scrapped. The proposal to abolish the 45% rate was reversed by the then Chancellor, Kwasi Kwarteng, on 3 October and the basic rate change was reversed by Mr Hunt on 17 October. This means that the basic rate will remain indefinitely at 20% and the highest rate of income tax will stay in place.

What remains?

Retained EU Law (Revocation and Reform) Bill

The proposals set out in the Retained EU Law (Revocation and Reform) Bill seem set to remain at this point.

Our previous blog considered what these changes could mean for workers, including current statutory minimum provisions relating to working time, paid holiday, health and safety, agency worker rights and TUPE.

With the ‘sunset provisions’ principle in place in the bill, as it stands all retained EU law will automatically expire on 31 of December 2023, unless it is expressly codified into UK law or extended. There remains the potential for employment law to be completely re-written and as the economic market becomes less certain and inflation squeezes profits, there is the prospect of more employer friendly (or employee unfriendly) legislation in the future.

National insurance cut

In April 2022, national insurance contributions increased by 1.25% to fund the NHS. Given the cost-of-living concerns, this increase was criticised and in the mini-budget this increase was reversed. Avoiding a double reversal, this removal of the increase will remain and comes into force on the 6 November 2022.

Impact

Last month the mini-budget boasted policies that were said to be designed to promote business, be cost saving, and simplify the system. Yet, following the mini-budget, the pound crashed and confidence in both the economic market and the government was incredibly low.

The new Chancellor has claimed that “no government can control markets, but every government can give certainty about the sustainability of public finances” and it is this certainty he aims to achieve by reversing these proposals.

The departure of the former Chancellor and the resignations of the Home Secretary and the Prime Minister all within a week of each other has, however, done little to promote confidence with the new Government.

The Retained EU Law (Revocation and Reform) Bill continues to progress through Parliament. Its second reading in the House of Commons happened on the 25 October 2022 and shortly after, the introducing Minister, Jacob Rees-Mogg, resigned. We shall have to see whether it remains in its current form and what impact the new Prime Minister will have.  

Additionally, Jeremy Hunt’s Autumn economic statement on 17 November 2022 may bring about yet further employment law changes (or, u-turns).

As we discussed in our previous blog, much uncertainty remains but we will ensure that we keep you updated on developments.