Philip Hammond, the Chancellor. CREDIT – PRESS ASSOCIATION
Philip Hammond will this week announce a raid on job perks enjoyed by millions of middle earners, including health checks, gym memberships and mobile phone contracts.
The Sunday Telegraph has learnt that the Autumn Statement will tighten rules that allow workers to forgo part of their salary in return for certain work benefits.
The move, described as a “stealth tax” by critics, will mean employees at big firms across Britain will be forced to pay hundreds of pounds to continue to receive perks they get through work.
Major companies have written to the Government warning they would be forced to scale back free medical checks for staff, undermining attempts to keep the country healthy.
But the Treasury believes the rapid growth of so-called “salary sacrifice” schemes is costing too much in lost income tax and national insurance contributions. A Whitehall source last night underlined the importance of “safeguarding revenue which is vital for funding public services”.
The disclosure was made in the run-up to Wednesday’s Autumn Statement, which has been framed as steadying the economy after Brexit and boosting “just about managing” families, dubbed JAMs.
Writing in The Sunday Telegraph, Mr Hammond reveals the thinking behind his first major set of announcements since taking over from George Osborne this summer.
He plays down chances of a spending splurge, praising his predecessor’s success at reducing the deficit and says the country should not “rest on our laurels” when it comes to balancing the books.
The Chancellor welcomes the “remarkable resilience” of the economy since the Brexit vote and gives a “no ifs, no buts” guarantee the Government will pull the country out of the EU.
Mr Hammond also references his decades of business experiences before entering politics to reassure companies and promises his measures will help Britons on lower incomes. “We will prioritise support to ordinary working families who are struggling to get by, so that they, too, can join in our vision of Britain’s future,” Mr Hammond writes.
The “struggling” families earn between £20,000 and £30,000 a year after tax and encompass 10 million people, according to think tanks.
Downgrades in economic forecasts have limited Mr Hammond’s ability to act and he is expected to announce a £100 billion increase in borrowing over the next five years. Yet ministers are preparing to cancel a rise in fuel duty and are also considering lowering Air Passenger Duty or softening the impact of benefit cuts.
This newspaper has learnt Mr Hammond will announce curbs on rules that govern how employees are offered benefits through their work. Traditionally, companies have offered benefits such as free health checks, gym membership, company cars and mobile phone contracts to workers on top of their salary.
In recent years there has been an upsurge in salary sacrifice schemes, which allow a worker to forgo some of their wage in return for perks. Employees do not pay income tax on the perks, and the company does not pay national insurance.
The end of salary-sacrifice tax benefits will affect millions of workers, with some estimated to pay £140 more a year for a phone contract and £240 for health checks. Critics have warned that the change will also force businesses to rewrite contracts with their staff, causing a major administration headache.
Debi O’Donovan, of the Reward & Employee Benefits Association, which represents Britain’s biggest firms, has written to ministers warning free health checks will be cut “when we should be encouraging healthy behaviours”.
A Whitehall source noted that pensions contributions, childcare benefits and cycle to work schemes would be exempted from the changes. Private health insurance schemes will also not be affected.
“There is a balance to be had between safeguarding revenue which is vital for funding public services whilst allowing employees to enjoy some benefits from their employer,” the source said.
The Treasury declined to comment on “speculation” about the Autumn Statement.
SALARY SACRIFICE CHANGES: Q&A
What is salary sacrifice?
Many employers give staff the option to swap part of their wage for a non-cash benefit. As a result of having a lower salary, employees pay less income tax and make lower National Insurance contributions. Likewise, employers save on National Insurance as this is linked to salary.
Popular benefits include pension contributions, meeting childcare costs, bicycle schemes and medical insurance. In recent years company cars, health screening, gym membership and mobile phone contracts have become more common.
Why is salary sacrifice under threat?
As more companies adopt salary sacrifice arrangements, less tax is collected. Plus the schemes are rising in popularity, increasing by a third in the last five years. The government consulted on changing the rules in August and will announce its decision next week.
Which benefits will be cut?
Mobile phone contracts, gym memberships, health checks and company cars are all set to lose their tax relief status. So are benefits like TVs, white goods and even wine, which is offered by some firms. However pension contributions, childcare benefits and the cycle to work scheme are exempted, while private health insurance is unaffected.
Will my company stop offering these benefits?
The proposals will not block firms offering benefits through salary sacrifice but will remove much of the incentive for them to do so. The fear is that companies will stop offering the checks because the financial advantage to them is smaller.
How much will people lose out?
A higher-rate taxpayer on a £350 mobile phone contract through work will have to pay an extra £140 a year for the same deal, according to experts at the firm Willis Towers Watson. In similar circumstances gym membership could cost an extra £160 a year and health screening an extra £240.
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