Last week’s Budget has gone down in history as the first to be delivered by a female chancellor, but I fear that millions of working women in the UK will be worse off as the consequences of tax changes unfold.
At face value, many of the measures announced by Rachel Reeves appear to benefit women. The increase to the minimum wage in April is key, as 58 per cent of workers earning this are female. As caring responsibilities fall more heavily on the shoulders of women, the extra £2.4bn to fund childcare and social care, plus the long-awaited reform of the carer’s allowance, are all welcome steps.
But will the knock-on effects of higher employer national insurance contributions negatively impact women in the labour market, and potentially increase childcare costs?
Women are not only more likely to work in low-paid jobs; they are also more likely to work part-time because of the need to balance their working hours around caring responsibilities. This means NI changes in April will disproportionately impact the cost of employing women in the workforce.
How so? Let’s say I employ someone on the minimum wage, working 15 hours per week. Currently, there would be no employer NI to pay, as the annual take home pay of that worker is below the £9,100 threshold. This has made it more cost-effective for employers in lower-wage, labour-intensive sectors of the economy to hire more part-time workers, rather than fewer full-time ones — and many of these are female.
Women currently account for 63 per cent of UK workers earning under the £9,100 threshold, according to Resolution Foundation analysis of ONS data. But any cost savings from employing part-time workers will be sharply reduced when the employer NI threshold drops to £5,000 and the tax rate rises from 13.8 to 15 per cent.
The NI changes will add nearly £700 to the annual cost of employing someone working 15 hours per week, on top of increases to the national living wage which take effect the same month.
Nye Cominetti, principal economist at the Resolution Foundation, estimates that an additional 600,000 women will be brought into the scope of employer NI contributions. “These measures will have a bigger impact on wage costs for women than men, but what’s uncertain is how this will play out in different parts of the labour market,” he says.
With public sector companies and the smallest employers shielded from the impact by exemptions and allowances, larger private sector businesses could respond by cutting jobs, reducing hours or exercising pay restraint — though the impact would not necessarily be concentrated on the lowest paid. Companies could try to pass on higher costs by raising prices, outsourcing jobs overseas or increasing the use of automation and AI.
There is also likely to be a rise in insecure employment if more businesses use unregulated umbrella companies to hire workers on temporary contracts, or self-employed workers in the gig economy. Fluctuations in pay could complicate women’s ability to access in-work benefits such as universal credit or tax-free childcare.
Noting the current “clustering” of part-time contracts offering 15-16 hours per week, Cominetti thinks worker preference, incentives in the benefits system and the fact this is where the employer’s NI threshold kicks in for the lowest paid workers are all contributing factors. Could this change?
From April, a part-timer on the minimum wage would need to work fewer than eight hours a week to stay beneath this. It would be highly impractical for companies to employ lots of workers on shorter contracts, but with so many women working part-time, any trends which do emerge could have a significant impact.
Some women might gain if employers moved away from part-time hours, says Mary-Ann Stephenson, director of the Women’s Budget Group, noting how women who want more hours but cannot get them often end up “patchworking” by combining several low-paid part-time jobs.
As well as making women’s work and childcare arrangements more complex, this also reduces the likelihood of women passing the £10,000 threshold needed to trigger automatic enrolment into an employer’s company pension scheme (women are already more than twice as likely as men to miss out on this). However, others could struggle to find a job that’s compatible with their caring responsibilities.
She believes part-time work is here to stay as it suits the fluctuating needs of many businesses, but points out that it tends to come with lower hourly pay rates: “There is a real dearth of part-time professional jobs at higher wages, and large numbers of women are employed in part-time jobs below their skills and education level just to get the flexibility they need.”
The high cost of childcare often means it is uneconomic for women to work more hours or continue working full-time, but Stephenson and others worry there could be a further sting in the tail.
A lot of women are delivering what is in effect state-funded work via private companies in the childcare and social care sectors. Will funding increases announced at the Budget cover the higher wage costs, or will providers pass these on in the form of higher charges? This has the potential to crimp the household finances of higher earning women.
Families have benefited from the expansion of “free” childcare hours, but Sonya Rees, partner at advisory firm Blick Rothenberg, fears many private nurseries will inflate the price of unfunded hours to cover increased staff costs. For school-aged children, the cost of wraparound care could also rise, as many after-school clubs are operated by private businesses.
The Financial Times revealed last week that the cost of hiring a full-time nanny would also increase by more than £1,000 a year as parents who employ one are not exempt from higher NI costs. This could lead to greater reliance on grandparents but more older women than men end up carrying the baby, which can impact their own earnings and pension-saving ability.
For some mothers, additional childcare costs will mean that, in the short term, work no longer pays. But in the longer term, a career break can be costly for career progression, widening the gender pay and pensions gap.
I spoke to one FT reader this week whose eye-popping £5,500 monthly childcare bill eats up more than half of her and her professional partner’s take-home pay. Add on the cost of their mortgage, bills and groceries, and they are running a deficit budget. But she has concluded that funding this from savings until their eldest child starts school will be a worthwhile investment in her lifetime earnings potential.
There are many unknowns ahead as NI changes take effect, but for the optimists, another important factor is the employment rights bill. If this enables more women to access higher-paid full-time work with the flexibility needed to navigate childcare arrangements, the Budget may end up being more women-friendly than the pessimists fear.
Claer Barrett is the FT’s consumer editor and the author of ‘What They Don’t Teach You About Money’. [email protected] Instagram @Claerb
Read the full article here