Is the NI increase a 'tax on jobs'?

[Undesired Walrus]

Becoming a defining difference between the two main parties. Labour want to raise NI and the tories want to keep it down, despite the fact this will- on the face of it- leave a 6billion gap in what the increase would raise. The Tories say they would gain the money through cutting wasteful government waste, but don't have much of an idea on how they are going to pay for it after the first year. They also say it is a tax on jobs. Are they right? Who is?

[andyandy]

what it is is a depressing theft from the American political discourse - where all taxes are rebranded in terms of "a tax on jobs" or "a tax on success" or some other such emotive phrase. We've already seen its power in effectively taking off the table Labour's eminently sensible elderly care proposal. But it was labelled a "death tax" by the right, and everyone goes, "hang on, i don't like death, and i don't like taxes, this must be really bad!"

[richardm]

"hang on, i don't like death, and i don't like taxes, this must be really bad!"

It was certain to happen, really.

What I will say is that it will add extra costs to employers at a time when they're still feeling a bit wobbly, and the timing could possibly be better. On the other hand the Tories are claiming that they won't raise any taxes, and won't cut any services either, which is plainly not very realistic. More likely is that they will do both of these things, because they usually do.

[Francesca R]

National insurance, in common with most social welfare contributions, is levied on labour income, so it fits the definition of "tax on jobs" as well as anything.

Sometimes people argue that it is more of a tax on jobs (than income tax) because of Employer's NICs but that's irrelevant really since whether the tax is paid by the employer or the employee (or both) doesn't change the extent to which it reduces demand for labour.

[andyandy]

National insurance, in common with most social welfare contributions, is levied on labour income, so it fits the definition of "tax on jobs" as well as anything.

Sometimes people argue that it is more of a tax on jobs (than income tax) because of Employer's NICs but that's irrelevant really since whether the tax is paid by the employer or the employee (or both) doesn't change the extent to which it reduces demand for labour.

The trouble (or not depending on your political persuasion) is that such emotive phrases skew the debate over whether taxes are necessary...

A tax rise for the rich becomes "A tax on aspirations"
A tax rise for business becomes "A tax on jobs"

You know, they could relabel them "A social levy for children" or "helping people live longer" - that would also be accurate....

[Francesca R]

Well where the money goes to is not that well defined, even in the case of NICs. Where it comes from, on the other hand, is.

So it's a tax on labour. VAT is a tax on wanting stuff, or providing stuff people want. Council tax is a tax on having a roof over your head. Inheritance tax is punishment for dying . . . .

And heaven forbid that politicians would make a campaign to get elected emotive. I could have sworn that when Alistair Darling raised income tax last he said "I am forcing people at the point of a gun to hand over more money . . . ", but when I looked again it was something like "I am asking the very wealthy to make an additional contribution . . . "

[Rolfe]

Isn't there a ceiling on NI contributions? So that when you get to that, you don't pay any more? If I'm right about that, it's regressive. Take the ceiling off. (And yes, that would probably hit me in the pocket, but it would be fair.)

Rolfe.

[Francesca R]

There was an upper earnings limit above which the marginal NI rate was 0%, yes. That was abolished a few budgets back and the rate was raised to 1% (for NICs between the lower limit and the upper limit the rate is 11%). It's not regressive at the bottom end. Taking the ceiling off would be the same as increasing income tax rates by 10% at the top end (to 51% and 61% respectively) which I doubt any political party could pull off.

(Probably wouldn't hit me in the pocket as I am a limited liability partner and thus self-employed and pay on a different scale and--fortunately for me anyway--small businesses are the darlings of politicians and rarely cop for populist tax hikes. Business rates, OTOH . . . .)

[Fiona]

I think they could do it because it does not affect the majority directly: and many it does affect would support it, as Rolfe does.

It is the way it is for historical reasons: it is called insurance and that fudge is what led to the current situation, I think

[Undesired Walrus]

I'd like to earn enough for it to affect me.

[Francesca R]

Perhaps at one time it would be doable (after all in the 1970s and very early 80s top tax rates were very high). But I think that trust in government has dwindled to the point where far fewer people (of all political stripes) want the state to be huge. The British are not as anti-big government as Americans are, but more than they used to be IMO.

[Darat]

Perhaps at one time it would be doable (after all in the 1970s and very early 80s top tax rates were very high). But I think that trust in government has dwindled to the point where far fewer people (of all political stripes) want the state to be huge. The British are not as anti-big government as Americans are, but more than they used to be IMO.

I don't think so I am reading this book (http://www.guardian.co.uk/books/2007/may/20/historybooks.features) at the moment and folks complaints are the same then as they are today, the state poking its nose into people's lives and then the people wanting to know why the state isn't doing anything about "standards" falling and so on. And I personally recall "anti-big-state" being a popular rallying cry of the Thatcher years.

[Skeptic]

Every tax is a "tax on jobs" since it means less money in the hand of the people and thus less money spent in the economy. But that's not telling us much. The question is, is the tax used for a worthwhile purpose that's worth the additional burden.

[Francesca R]

Every tax is a "tax on jobs" since it means less money in the hand of the people and thus less money spent in the economy.That isn't what it means. Not all taxes reduce the demand for employment by the same amount per quid of tax raised. Some reduce the demand for smoking cigarettes, some for buying houses, some for burning petrol, and so on.

Tax that is charged on employment income directly creates a larger fall in the equilibrium amount of employment income that prevails, than other taxes. Of course all of them reduce total (national) income/output relative to no taxes. But then zero government provision does that too.

[Francesca R]

I don't think so I am reading this book (http://www.guardian.co.uk/books/2007/may/20/historybooks.features) at the moment and folks complaints are the same then as they are today, the state poking its nose into people's lives and then the people wanting to know why the state isn't doing anything about "standards" falling and so on.I suppose I could revise my view: even if the public is no more anti-big government that it ever was, the fact that the latest government is the biggest in living memory (which I believe it is) is sufficient to make the public pretty averse to very high tax rates.

[Jaggy Bunnet]

Taking the ceiling off would be the same as increasing income tax rates by 10% at the top end (to 51% and 61% respectively) which I doubt any political party could pull off.

Labour appear to disagree as they are introducing both a 52% rate (50% income tax + 2% NI contribution) and a 62% rate (40% tax, 20% impact of withdrawing personal allowance + 2% NI contribution).

And the Tories are not proposing to get rid of either.

[Undesired Walrus]

I don't think so I am reading this book (http://www.guardian.co.uk/books/2007/may/20/historybooks.features) at the moment and folks complaints are the same then as they are today, the state poking its nose into people's lives and then the people wanting to know why the state isn't doing anything about "standards" falling and so on. And I personally recall "anti-big-state" being a popular rallying cry of the Thatcher years.

Does this book paint a less generous picture of Attlee's administration than most historians then?

[Francesca R]

Labour appear to disagree as they are introducing both a 52% rate (50% income tax + 2% NI contribution) and a 62% rate (40% tax, 20% impact of withdrawing personal allowance + 2% NI contribution).

And the Tories are not proposing to get rid of either.Labour's 52% rate kicks in at an income level of £150,000. If NI was 12% all the way, it would kick in at approx £44,000. That is what I refer to as politically implausible.

At what income band does a 62% marginal rate apply? I understand this to apply--in effect--on income above £100,000 up until about £112,000, after which it resets back to 42% until you hit £150,000.

[Reginald]

You could argue that any taxation is a tax on jobs.

The really interesting part is how much does the tax, indeed any tax actually affect the number of people employed.

Our "league of businessmen" will get a nasty shock when and if VAT goes up, less custom, that's a basic of economics too. How many jobs will go?

Its been reported that up to 40,000 jobs may have to go (Colin Talbot, professor of public management at Manchester Business School), or not be created in order for the Conservatives to meet some of these election commitments. So if that is the case then stopping the NI increase will affect the total number of jobs. The exact opposite of the "Tax on Jobs" claim.

The thing about NI is that it takes money from the employee and the employer as a result of employment (and other working conditions), the other taxes ultimately do the same just via more indirect routes.

I sit aghast and watch the group of business "leaders" line up to back the conservative stance on the NI rise. When only a few weeks ago business support was all for deficit reduction.

Call me an old socialist, actually call me a socialist of old (I threw in my party membership years ago) but something in my gut says "ewww" when I see a lot of businessmen trying to influence the vote towards a Conservative government. My Intention was either not to vote or to go and write something prosaic on my ballot paper, I'm voting now and it wont be anything like the businessmen want me to.

Oh, and lastly, the credentials of these businessmen, the one's who the conservatives claim to know how it works.........they are right, but not necessarily in any UK employment/tax interest.

Take a look through that list and see how many of them have used tax avoidance, how many donate party funds and how many of them outsource their manufacturing overseas....and some that do (M&S for example) have to have UK employees only do so because its difficult to get a low paid indian/chinese worker to tend store/drive lorry/unload ship in the UK, its the travel to work distance apparently. They do know how to run a business well, some know a little too well.

You can call a tax what you like, ultimately it's going to affect jobs, the consequences vary and it would depend on what side of the political fence you sit on if those consequences are acceptable.

[Jaggy Bunnet]

Its been reported that up to 40,000 jobs may have to go (Colin Talbot, professor of public management at Manchester Business School), or not be created in order for the Conservatives to meet some of these election commitments.

Anyone who thinks the way to achieve deficit reduction is to tax the private sector more to retain jobs in the public sector is deluding themselves.

Even Labour Treasury Minister Stephen Timms admits the NI increase will cost jobs, he just isn't willing to publsh the Treasury estimates of how much until after people vote (why should the voters have the information they have paid for to make up their minds after all?):

"Labour's plan to hike National Insurance will cost jobs, a senior Treasury minister admitted last night."

http://www.thisismoney.co.uk/news/article.html?in_article_id=502588&in_page_id=2

The incredible expansion in public spending, funded by borrowing, is going to have to be partially reversed. There is no other way to deal with the deficit.

[Darat]

I think the median annual earnings in the UK is something like £21,000, how much will the increase in NI contribution cost the employer of an employee on £21,000 a year?

[Reginald]

I think the median annual earnings in the UK is something like £21,000, how much will the increase in NI contribution cost the employer of an employee on £21,000 a year?
James Caan (Dragons den), suggested on Newsnight last night (iplayer for those who can get it)... a figure of £15/month, He does qualify that by suggesting that many on the "List" pay under the threshold or on typical retail salaries.

It's a very interesting view. Earlier he was reported of being against the NI increase, subsequently admitting that looking at the small print he sees it not being a barrier to employment.