Extract from IDS Executive Compensation Review 303, May 2006

Budget 2006: a HR perspective

Every year, many human resource practitioners look to the annual Budget to see if it includes any new measures that would reinvigorate their reward strategies. In March, the Chancellor of the Exchequer delivered his tenth annual budget and the HR implications of the latest speech are summarised in this article.

Past experience demonstrates that tax policy can have a big influence on pay practice, but any personnel specialists looking to this year’s Budget for inspiration would be disappointed. The Chancellor’s latest Budget speech contained no new high-profile tax changes likely to have an impact on reward packages with the measures it did contain mainly confined to the uprating of existing income tax rates and bands. Nevertheless, despite the lack of headline-grabbing announcements, there were some minor measures relevant to HR practitioners.

The main move involved increasing the existing income tax bands and allowances in line with statutory indexation requirements. Increases in National Insurance (NI) rates and thresholds, also effective from 6 April, were announced in the pre-Budget report at the end of last year. Because the income tax and NI regimes have now been aligned, the value of this year’s personal allowance had already been announced in the pre-Budget. What remained for the full Budget was confirmation that the rest of the income tax regime would be increased accordingly. This article includes tables showing a summary of the new income tax and personal allowance regime, along with related figures of interest to employees such as capital gains tax annual exemption and the pension annual and lifetime allowances.