The CBI today called on the Government to offer immediate help to boost living standards for low income and working families by raising the threshold when employees pay National Insurance and expanding free childcare to one and two year-olds.
Launching a new report, A better off Britain, at its flagship annual conference in London, the CBI also outlined a package of longer-term measures designed to raise pay sustainably.
They include: a business-focus on raising productivity to boost pay; better routes into higher-skilled better-paid work; and measures to ensure young people don’t fall behind in school. The report also highlights ways that businesses can help their employees build stronger financial buffers.
John Cridland, CBI Director-General, said: “The financial crisis and the slow recovery have hit people’s finances hard. Living standards will gradually improve as the economy does. But growth on its own will not be the miracle cure. Even before the recession, the income of a child’s parents determined too many of their own life chances.
“The UK needs to face up to some real long-term challenges. Changing skills needs, greater global competition and low social mobility mean for many the pathway to a better life is tough and far from clear.
“But the answers do not lie in short-term sticking plaster fixes, like intervening in pay or attacking the UK’s flexible labour market, which will ultimately cost jobs. Instead, we need to invest in productivity, skills and education to make the best of Britain’s talents.
“To ease pressure on families and people on low incomes, we want immediate action, including cutting employee National Insurance and making childcare more affordable.
“Then we have to tackle the long-term issues. Higher productivity leads to better wages, so we must have a laser-like focus on boosting firms’ competitiveness. We also need to create better ladders to higher-skilled, higher-paid work and improve our education system for all, to overcome disadvantage. Business leaders need to step up to the plate, as well as politicians.
“Business wants to help build a more prosperous Britain where everyone has the chance to get on in life. This is the right thing to do to build a stronger and fairer society, and it makes good business and economic sense too.”
Immediate action – on employee National Insurance (NICs) and childcare
The average couple with two children saw their income fall by £2,132 a year in real terms between 2009/10 and 2012/13. Working families, those on low incomes, and younger workers have found recent years the most difficult.
Families have been hit by rising childcare costs and employees have seen less of the money employers spend on them, with more going into National Insurance contributions and pensions. To provide immediate relief, the CBI is calling for a reduction in employee NICs now – raising the threshold at which it is paid by staff to £10,500 in a series of steps until 2020/21. This will be worth £363 to a dual-income household and is more effective than raising income tax allowances.
Childcare costs have risen by 27% since 2010, hitting working families and stopping parents from working or increasing their hours. The current system of state support is complex, wasteful and needs changing. The CBI’s measures include:
-Extending free childcare provision of 15 hours to all children aged 1 and 2, with the longer-term aim of increasing the number of hours provided
-Extending maternity pay from 39 to 52 weeks to close the gap between maternity leave and when free childcare becomes available
-Businesses adopting a presumption in favour of flexibility from the job advert stage to help employees save on childcare costs.
Katja Hall, CBI Deputy Director-General, said: “Cutting employee National Insurance and helping families with the cost of childcare will put more money directly into people’s pockets.
“Overhauling childcare in the UK would be a triple shot in the arm for our economy, raising family incomes, getting more adults into work and improving the life chances of many children.
“Many parents want to come back to work or put in more hours, but can’t because of soaring childcare costs. It’s ludicrous that the average working couple in the UK now spends over a third of their joint income on childcare.”
A new focus on productivity
The UK faces a long-term productivity challenge which has been made worse by the economic crisis. How much value we add in every single hour in the UK – be that the number of goods manufactured or the value of customer services delivered – closely aligns with pay levels. If firms are more competitive, wages will rise. But the UK’s productivity is still 16% behind where it would have been had the crisis not happened.
The Government needs a greater understanding of productivity and how different sectors are faring. But ultimately raising productivity is a challenge for business, not for government. The CBI’s recommendations include:
-Putting the Office for Budget Responsibility (OBR) in charge of reporting on key productivity trends and challenges in a similar way to the Australian Productivity Commission
-Making raising employee value-added a business priority, focusing on areas like management skills, job design, innovation and investment
-Simplifying the support network for smaller and medium-sized firms, improving access to public sector contracts; and finance and exports support.
Mr Cridland said: “The productivity challenge leaves many economists scratching their heads. There is no blanket solution – what value-added is varies from sector to sector and business to business.
“By working together on boosting investment and innovation businesses could make a real difference to growth and pay.”
Skills for employment
The higher the skill level of a job, the better the pay. Over the last few decades, middle-skilled jobs in the UK have not disappeared – but they have become more highly-skilled. Jobs once requiring a level 3 qualification (A-level or equivalent) now demand level 4 (for example, Certificate of Higher Education). By 2022 half of all jobs are estimated to require level 4. This makes it more difficult for those with lower skills to move up the career ladder, which isn’t helped by a college system focussed on lower skilled provision. The CBI’s recommendations include:
-Helping more people gain the new middle skills they need (level 4) by focussing on vocational routes to higher skills – not just degrees
-Businesses making a board-level commitment to helping employees develop their careers and incentivising line managers to make this a priority
-Ensuring colleges are delivering courses that are in demand in the economy by rewarding them for specialisation and employment outcomes, not just for attendance.
Ms Hall said: “Our economy is changing. Middle-level jobs now require ever higher levels of skills, and many firms across the country are crying out for people to fill these kinds of roles.
“At the same time a third of workers in the lowest pay group have been stuck there for at least 14 years, which is an unforgivable waste of potential.
“We need to help more of these people re-train, boost their skills and confidence, increasing their chances of moving up in their careers to the higher paid roles our economy is creating.”
A truly successful UK starts with high performing schools
Education is the best long-term tool to boost growth and living standards through social mobility, but too many young people from disadvantaged backgrounds start school behind and never catch up. A sixteen year old child from a disadvantaged background has a 48% chance of achieving at least five GCSEs A*-C, including English and maths, compared with a 77% chance for a child from a better-off background. And aged 25, these young adults are still behind, earning around £71 less a week. The CBI’s recommendations to improve the schools system to ensure individual backgrounds don’t determine life chances and future living standards include:
-Reinstating the duty on schools to provide work-related learning and introduce a national network of Local Brokers to support schools to ensure all young people gain experience of the world of work
-Introducing a vocational A-level and moving away from GCSEs and peak-level examinations at 16
-Businesses ensuring they recruit from the widest possible socio-economic spread.
Mr Cridland said: “There is no better way to improve the long-term competitiveness of our economy or the future chances of our young people than education.
“We need our education system to support every single young person with their individual needs, not just to pass exams, but to become rounded and grounded people who can get on outside the school gates.”
Ensuring people have a buffer for a rainy day
It’s not possible to guard 100% against people falling on hard times. But for people living day-to-day, one-off unexpected costs can kick-start a cycle of debt. So we need to do more to help people build up savings buffers by:
-Raising demand for corporate Individual Savings Accounts (ISAs) by allowing people to save in both an individual and corporate ISA
-Tackling barriers to more widespread offering of capital sharing and share ownership schemes. Mr Cridland concluded: “One in five people have no savings whatsoever but having a buffer is essential when things go wrong.
“Firms can do more to help staff save and giving people a stake in the business can have real benefits, from lower staff turnover and increased employee engagement.”