Tag: Press Release

The press release issued by PWC on 7 March 2023.

• UK drops five places, from 9th to 14th, and records absolute decline on PwC’s annual OECD index of women’s employment outcomes
• UK gender pay gap widened by 2.4 percentage points, from 12% in 2020 to 14.4% in 2021 – four times the increase across the OECD
• UK remains leading economy across G7 countries for overall women’s employment outcomes – but gap between Canada in second place has significantly narrowed
• Female labour force participation fell between 2020 and 2021 by 0.4 percentage points, despite an average increase across the OECD of 1.3 percentage points
• Childcare affordability in the UK acting as barrier to progress, while policies that help redistribute childcare could deliver key benefits to women’s workforce participation, as well as to fathers, children and wider society 

The UK has recorded an absolute decline in  women’s employment outcomes in 2021, seeing its relative international ranking fall five places, from 9th to 14th, according to PwC’s annual index of OECD countries.

The UK saw a significant widening of the gender pay gap by 2.4 percentage points to 14.4% in 2021 – four times the average increase across the OECD as a whole. Combined with a slight fall in the female labour force participation rate, the UK’s absolute index score declined by two points in 2021, and led to a relative fall to 14th in OECD rankings compared to 2020.

While the UK remains the leading economy across G7 peers in 2021 at 69 points on the Index, the gap between the UK and Canada in second place, has also narrowed to just two index points.

Since the COVID-19 pandemic, the UK’s progress towards gender pay parity has been in reverse, and the UK female labour force participation rate fell 0.4 percentage points between 2020 and 2021, during a time of labour market recovery across the OECD. The rising costs of childcare threaten to make these results even worse, with more women being priced out of work altogether.

Childcare and the cost of living crisis:

The report highlights childcare affordability issues for families in the UK. In 2021, childcare costs relative to average income were one of the highest across OECD countries. Net childcare costs represented almost a third of the income of a family on the average UK wage. This compares to as little as 1% of income in Germany.

Since 2015, childcare costs in the UK have risen dramatically, while income growth has slowed. Average nursery costs per week rose by more than 20% between 2015 and 2022, while average weekly earnings rose by 14% (both in nominal terms).

Upcoming research from PwC* shows that an increase in the number of government-funded free childcare hours could generate a significant increase in the size of the labour force.

Larice Stielow, senior economist at PwC, says:

“An 18 year old woman entering the workforce today will not see pay equality in her working lifetime. At the rate the gender pay gap is closing, it will take more than 50 years to reach gender pay parity. If the rebound from the pandemic has taught us anything, it is that we can’t rely on economic growth alone to produce gender equality – unless we want to wait another 50 years or more.

“The motherhood penalty is now the most significant driver of the gender pay gap and, in the UK, women are being hit even harder by the rising cost of living and increasing cost of childcare.  With this and the gap in free childcare provision between ages 1 and 3, more women are being priced out of work.  For many it is more affordable to leave work than remain in employment and pay for childcare, especially for families at lower income levels.”
The role of parental leave policies in eliminating the motherhood penalty:

While affordable childcare could help more women back into the workforce, in order to tackle the motherhood penalty at its root, the report explores solutions that could help to redistribute childcare more equally between women and men. This would assist in shifting societal attitudes about gender roles. While the UK currently offers a statutory shared parental leave scheme, take up by fathers is low (estimated 2-8%), mainly due to affordability issues, with payment to fathers only at the statutory level (capped at £156.66 per week, among the lowest in Europe).

The analysis suggests that, as a result of fathers taking more paternity leave, an additional 720,000 women in the UK could remain in full-time employment (over a 20 year analysis period), thus improving the UK’s overall ranking on the Index. Moreover, it estimates that the incidence of postpartum depression would fall – with an estimated  230,000 mothers and 240,000 fathers no longer suffering over the analysis period, which could save the NHS around £1.4 billion.

The benefits are not limited to parents – as a result of fathers spending more time with their children in their early years, around 66,000 children every year (10% of births) could attain better educational outcomes –  scoring one grade higher in either Mathematics or English at GCSE once they reach high school age. This is also estimated to lead to an increase in their lifetime earnings of £330m.

Zlatina Loudjeva, Partner in PwC’s International Development team, said:

“Rather than post-pandemic recovery for women, we’re seeing the opposite when it comes to closing the gender pay gap. With both a reversal in the UK’s progress on the index, and a widening of the gender pay gap, it’s clear that it was not a COVID linked issue alone and therefore, ‘business as usual’ simply won’t cut it. This is a question of equity but also a pertinent economic issue as the UK faces labour shortages. There is also a business cost of talent retention.

“We can no longer talk about the impact of COVID-19, it is clear that the cost of childcare in the UK and attitudes towards childcare need urgent focus and action, with government and business to work together to help mitigate the confluence of shocks that have occurred over the last few years so that women are not priced out of the workforce.

“There is no panacea, nor a one size fits all policy, that will solve the problems for women at work today. We should consider enhanced parental leave policies and more flexible working so that all parents can balance work and caring responsibilities, alongside tackling the cost of childcare, to help create a more equitable and prosperous society for all. The index shows that this is doable and a number of OECD economies are leading the way through successful interventions.”
The Index: how the UK regions fare 

Northern Ireland ranks #1 amongst the countries and regions in the UK, overtaking the South West which has been the top-performing region for three years consecutively up until this year. The South West now drops into second place, while Scotland remains third (unchanged from last year).

Northern Ireland boasts the smallest gender pay gap across the countries and regions (only 5%), and a higher female full-time employment rate than most (the third best across the UK at 64%). However, it has the lowest female labour force participation rate (70%)  of all countries and regions in the UK.

Wales saw the largest decrease in terms of absolute Index score as well as the largest fall in rank between 2020 and 2021. Wales fell from 2nd place to 6th place. This was due to marginal deterioration seen across the majority of indicators.

The press release issued by PWC on 3 March 2023.

On 15 March Chancellor of the Exchequer Jeremy Hunt will deliver his Spring Budget, accompanied by a full fiscal statement from the OBR. The Budget is expected to focus on measures which will support the Government’s economic plan to halve inflation, grow the economy and reduce public debt.

The Chancellor has said that the economic plan will be based on four ‘E’ pillars of Enterprise, Education, Employment and Everywhere. He has also stated the Government’s long-term ambition is for the UK to have “the most competitive tax regime of any major country.”

The Budget is expected to provide an insight into the path ahead for business and personal taxes, along with a vision for innovation and R&D strategy and measures aimed at reducing labour market inactivity and boosting economic growth.

PwC specialists and economists explore some of the potential measures that have been subject to speculation.

• Economic outlook (Barret Kupelian)
• The outlook for business tax (Jon Richardson)
• R&D tax credits and innovation (Rachel Moore)
• Capital taxes & enterprise incentives (Alex Henderson)
• Employment taxes and productivity (Julian Sansum)
• Employment law and return to work (Ed Stacey)
• Personal tax (Christine Cairns)
• Environment & sustainability (Lynne Baber)

Economic Outlook

Barret Kupelian, senior economist at PwC says:

“The OBR’s forecast is likely to reflect an improved short-term economic outlook relative to the Autumn Statement but overall it will highlight the more challenging environment the UK is likely to find itself in the medium to long-run.

“The good news is that the short-term economic outlook is more positive, with inflation expected to drop faster this year than the Autumn Statement forecasts. This will be good news for the government, business and households. Consumers will continue to feel squeezed but real wages are likely to start growing towards the end of the year, potentially marking the end of the cost of living squeeze. This could also mean the economy grows faster than expected this year as damage from inflation is contained.

“However, the Chancellor is likely to face continued challenges in the medium-term. The first one relates to revised inflation assumptions for after 2023.  In the autumn the OBR had expected the UK would see a sharply declining inflationary outlook through this year and would be on course to enter a deflationary environment by 2024. Instead we can expect the OBR’s statement to align more closely to the Bank of England’s expectation that inflation will be relatively higher after 2023, meaning that debt interest payments on the national debt will probably rise faster.

“For this reason we expect that the Chancellor will seek to maintain the UK’s tight fiscal environment with a focus on targeted spending to improve economic growth and productivity–potentially sketching out his vision for the UK economy for the future.

“Also, there is a growing awareness of the extent to which the UK’s high figures of economic inactivity are linked to ill health of the workforce. We can expect some measures, such as health MOT programmes, to specifically support those who can return to work and also potentially targeted welfare measures to convert part-time workers into full-time workers.

“Finally, we can also expect the Chancellor to continue to provide support to households through delaying the increase in the Energy Price Guarantee. Wholesale energy prices are continuing on a downward trajectory and therefore the policy is likely to cost considerably less than forecast, and has been a substantial bulwark against inflationary pressures in the wider economy.”

The outlook for business tax

Jon Richardson, head of tax policy at PwC, says:

“The Chancellor has suggested that he will not be looking at significant changes to rates of corporate and business tax. Businesses will welcome a degree of certainty and stability after the changes last year. Yet many are deeply concerned about their international competitiveness in an extremely challenging economic outlook once the corporation tax rises to 25% and the super-deduction ends next month.*

“In his speech in January, the Chancellor said “our ambition should be to have nothing less than the most competitive tax regime of any major country”, businesses will be hoping the Chancellor will provide a road-map for how the Government plans to achieve this.

“Businesses are paying close attention to the UK’s position in relation to peers in the US and Europe, especially in light of the impact of the US Inflation Reduction Act. The end of the 130% super-deduction will place further pressure on UK capital expenditure, and many will be looking for further certainty through reform of the capital allowances regime to ensure the UK can remain competitive.

“Under the Chancellors “Everywhere” banner we can expect to find out more on whether the previously announced investment zones will include any fiscal incentives.”

*To give one sector-specific example, PwC has projected that a London-based investment bank could face a potential total tax rate of 45.7% in 2024 compared to 38.5% in Frankfurt and 27.4% in New York.

 

Rachel Moore, R&D tax partner, PwC, says:

“Following backlash from business and industry bodies on the halving of the SME rate of relief, the Chancellor has signalled the potential for additional  support aimed at R&D intensive industries, such as the life sciences and digital technologies, which are a crucial driver of UK economic growth. It may be that the Chancellor looks outside of the tax system to support R&D in this Budget through a range of grants and government support for emerging industries.

“Large companies have welcomed the increase in the R&D tax credit limit from 13% to 20% in the Autumn Statement, which will help some businesses in mitigating the impact of the rebasing of the relief to UK costs. There is still some way to go in making the regime globally competitive with the cash benefit remaining behind the OECD average.

“There is an ongoing consultation into proposals to merge R&D incentives for large companies and SMEs but there are a number of hurdles to overcome in how the structure of a merged relief might work.  He may choose to extend or expand the scope of these consultations especially in light of Sir Patrick Vallance’s review into regulations governing the UK’s innovation strategy. We may also see the government introduce further measures to combat abuse of the R&D regimes.”

Capital taxes and enterprise incentives

Alex Henderson, tax partner at PwC says:

“The Chancellor has indicated that the Government’s priority for this year will be on stability and measures to build on the fiscal and economic ambitions outlined in the Autumn Statement. Therefore, whereas recent Budgets and statements have tended to focus on rates and allowances, with much of the ‘heavy lifting’ already baked in this Budget  is much more likely to be about incentives and reliefs, highlighting areas of importance to the Chancellor and creating a narrative around growth and support for businesses.

“The Autumn Statement saw substantial changes to Capital Gains Tax, with the threshold set to halve again to £3,000 in 2024. Given the focus on stability it is unlikely the Chancellor will seek to revisit this area in this Budget in any significant way but there are many targeted reliefs in the tax and Chancellors are always keen to ensure they are getting value for money in these.

“Smaller businesses will be hoping to see a range of measures aimed at some of their specific pressures and support to help them close the capital gap with larger companies in terms of access to funding. The Chancellor may choose to look at enterprise incentives, in areas such as Seed Enterprise Investment Schemes, the Enterprise Investment Scheme and Venture Capital Trusts, employee incentives or even enhancing the targeted small companies’ rate of corporation tax.

“One area for smaller businesses which would be particularly worth considering would be addressing the tax compliance burden which has a disproportionate impact on SMEs.  Measures which could improve the ability for small businesses to consult with HMRC, may help reduce the costs of administering and navigating complex rules.”

Employment taxes and productivity

Julian Sansum, employment tax partner at PwC, says:

“While there are a number of drivers for the UK’s economic inactivity rates, there has been particular focus on how to encourage those who have voluntarily dropped out of the workforce or who have struggled to find suitable opportunities. Over two thirds of those aged 50-54 in the ONS Over-50s Lifestyle Survey reported concerns about a lack of skills in being able to return to work following the pandemic. The Chancellor may look at targeted back-to-work reskilling programmes to address this cohort, as well as how to incorporate reforms to the Apprenticeship Levy to encourage greater use of employee training schemes to address some wider skills shortages. .

“A key component of the Apprenticeship Levy was to encourage companies with a payroll in excess of £3m to spend 0.5% of their wage bill to provide 40 days of high-quality skills training external to the organisation. Companies and individuals have expressed concern that this acts as a disincentive to take up such training opportunities given the time this involves away from the workplace, with estimates suggesting over £3bn of the levy has been returned to the Treasury since its introduction in 2019. The decision last year to cut the commitment for a day’s training to six hours, down from seven, has been welcomed by many to address this balance.

“The Chancellor could go further in these reforms by, for example, ring-fencing 25% of the Levy to be spent on 25 days of training. This could provide an additional incentive for businesses to invest in reskilling and upskilling initiatives across all age groups without significantly reducing their employees’ productive contribution.

“In addition, there could be options to delay or defer pension payments to reduce the marginal rate of income tax for over-60s, to encourage this smaller demographic back to work. This could include enabling those who are currently in receipt of pension payments to pause payments if they take up new work.

“An area the Chancellor could look to for the larger over-50 cohort, however, would be reforms to tax on in-work benefits: additional costs created through going back to the office, such as transportation and food, may act as a disincentive for many.”

Employment law

Ed Stacey, employment law partner at PwC, says: 

“The Chancellor and the DWP have indicated they are exploring ways to encourage GPs to issue sick notes that focus on employees continuing to work with support rather than being signed off altogether. Given that many larger employers already have occupational health support, this new focus is likely to be of most interest to smaller employers.

“Whilst policies to support people back to work will generally be supported by employers, there will be challenges. Will there be capacity in the NHS and specifically for GPs to invest the time to better understand an individual’s workplace such that a recommendation can be made? The plan would also require time and support from the employer, in tandem, any phased or limited return can often place additional pressures on colleagues which employers will need to carefully manage.

“Given that some employees may still believe that they need to remain off work completely, there will also be a question around the value that they will bring if they are returning with a level of reluctance.”

Personal taxes

Christine Cairns, tax partner at PwC, says:

“Despite record breaking self assessment tax revenue in January 2023, we expect the Chancellor to resist pressure to introduce any personal tax cuts, including the previously announced drop to 19% from 20% for the basic rate.  Instead, the changes to thresholds and tax reliefs which we saw in the Autumn Statement in a move aimed to boost tax revenues further through fiscal drag, particularly from higher earners and investors, will be maintained.

“Likewise, the ‘non-dom’ regime continues to be in the spotlight following Labour’s pledge to abolish it. While it is possible that the Chancellor may tweak the flat rate of charge paid by non-domiciliaries to access the regime, or the number of years an individual can spend in the UK before becoming deemed domiciled, it is worth noting that the regime has already been repeatedly revised.

Environment and Sustainability 

Lynne Baber, Head of Sustainability at PwC says:

“This Budget is a real test of the Government’s green credentials. Following the publication of the Skidmore Review, there is an opportunity to demonstrate wider support for the Net Zero transition.

“We’ve seen encouraging moves over the past few months, and opposition pressure is also intensifying. With the creation of the Department for Energy Security and Net Zero and the Nationally Significant Infrastructure Projects action plan being backed by strong rhetoric, this Budget presents the ideal opportunity to turn that talk into action.

“The Inflation Reduction Act in the US and the REPowerEU deal have shown how strong support for clean energy can be and the UK is now at risk of falling behind in terms of leveraging the transition as a means for economic growth.

“While the main focus of the Budget is likely to be the ongoing cost of living crisis there remains an urgent need for a plan to deliver green economic growth. The Low Carbon and Renewable Energy Economy is growing faster than any other part of the economy and we cannot afford for this momentum to be slowed given its potential to create jobs everywhere across the UK.

“The policy decisions made over the remainder of this Parliament will have a profound impact on the UK’s future, so it is not just the green industries who will be awaiting a clear strategy.”

The press release issued by PWC on 2 March 2023.

The funding status for the 5,000-plus corporate defined benefit (DB) pension schemes in the UK continues to show a strong surplus of £325bn on PwC’s Low Reliance Index, which assumes schemes invest in low-risk, income-generating assets like bonds, meaning they are unlikely to call on the sponsor for further funding.

Analysis shows this could increase by a further £10bn when schemes have incorporated the latest data on the impact of the Covid-19 pandemic.

PwC’s Buyout Index – which tracks the position of the UK’s DB schemes against an estimated cost of insurance buyout – also continues to show that, on average, schemes have sufficient assets to ‘buy out’ their pension promises with insurance companies, recording a surplus of £160bn.

John Dunn, head of pensions funding and transformation at PwC, said:

“Although schemes on the whole remain very well funded, there’s still plenty for the sponsors and trustees of the UK’s DB pension schemes to be thinking about. A big debate for the last two years has centred on how to allow for the impact of the pandemic in life expectancy projections. More data is now available and the emerging consensus is that the lingering effects of the pandemic are likely to reduce life expectancy compared to previous projections. Once pension schemes factor this new data into their valuations, it could increase the aggregate surplus by a further £10bn on a low reliance funding measure.”

Laura Treece, pensions actuary at PwC, added:

“When setting assumptions about future life expectancy of pension scheme members, most actuaries use models from the UK’s Continuous Mortality Investigation (CMI). Since the pandemic began, the CMI’s models have allowed actuaries to decide how much weight they want to place on the higher mortality experienced during the pandemic – in essence a ‘Covid-19 allowance’. Initially the CMI, and many actuaries, opted to place no weight on the data during the pandemic years, as it was very hard to assess the longer term impact on life expectancy.

“However, the data is now more stable and for the first time the CMI believe that – sadly – it  may be somewhat indicative of the future trend. Its latest model proposes to place a 25% weighting on the mortality experienced in 2022. For pension schemes that haven’t made any allowance for the pandemic, that’s broadly equivalent to assuming that their members will, on average, live for between half and three-quarters of a year less, depending on when life expectancy was last assessed. That could be equivalent to a 1.5% to 2% fall in liabilities. Even if half of schemes have already made a Covid-19 allowance, that’s £10bn extra funding for the rest. Every scheme is different so sponsors and trustees should make sure they understand how the pandemic and its associated effects have impacted members of their pension schemes specifically.”