From the BBC:
Universities Minister David Willetts confirmed on the BBC's Politics Show there would be measures to boost firms outside the South East of England. This is expected to take the form of a three-year scheme to exempt start-up firms elsewhere in the UK from paying NI for the first 10 people employed.
Oh dear oh dear.
1. We're in a recession right now (or in the lull before the next one). As a matter of day-to-day practicality, it's easier and cheaper to ensure that as few people as possible lose their jobs than it is to dream up cunning plans whereby new jobs will be created. Any fule kno that not losing a customer is usually much cheaper than winning a new one, and the same sort of logic applies here.
2. What does 'start-up firm' mean? I'd advise any existing business employing ten or fewer people to shut up shop, start up a phoenix company the next day and take on the same people, hey presto, tax breaks!
3. Must it not be obvious to a blind man (no offence meant to any blind people reading this) that this is a barrier to job creation as much as an incentive? There may be 'start-up firms' employing ten or fewer people who were thinking about taking on another two or three, but for whom losing the tax break on the first ten wipes out the commercial benefit of taking them on.
4. Most small businesses employ family members to use up their tax-free personal allowances. So most small businesses can reduce their nominal headcount by two or three to suddenly slip below the magic figure of ten and hence qualify.
5. Does it make the slightest bit of difference to somebody looking for a job whether he or she gets taken on by somebody who already employees nine people, nineteen or nineteen thousand? A job's a job.
6. Isn't this a barrier to growth, however subtle? If your business employs fifteen or twenty people, you might have been worried about the 'start-up' competitor up the road who has rapidly grown to ten employees. At least now you know that your competitor will be encouraged to halt further expansion (see 3. above).
Continued page 94.
Monday, 21 June 2010
Spot the loophole
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12 comments:
It's just another massive government misallocation of capital. If there are no jobs or businesses starting up in those 'deprived areas' then the jobless need to move to where the jobs are - have they never heard of 'location of industry theory'. Anyway, why should my successful business be made to make transfer payments to competitors in the wrong place?
MW,
the minute I see at the start of one of your posts the words oh dear, oh dear (or similar), I know that I am about to be overwhelmed with a flood of logic.
Keep it up Sir (as they say)
L, sure, but if you say that then somebody will ask you whether you want to 'concrete over the South East'.
WFW, ta, I was told off for using the *sigh* tag, but I guess 'Oh dear, oh dear' will do just as well.
So, vis a vis your point 2. Commercial rents just outside the south-east border will rise as those small businesses who are just on the wrong side of the border shut down and are reincarnated a couple of miles up the road.
Another thought occurs to me. If I employed say 20 people outside the SE I would split the business in half, set up a new business for one of the halves and hey presto - halved the NI bill.
What is even more alarming, I think, if the evidence is still available and hasn't been artfully doctored post event, is that I have a strong recollection that when this "idea" first surfaced Ding announced it as if to suggest that the incentive would extend to there being NO NI for all employees of "new businesses" - the clarification that it would only apply to the first 10 employees came later - I think Ding announced it at one of the Blue Brigade Outings they refer to as their "annual conference" during his "keynote speech" and the clarification presumably came after someone with a working brain took him aside and said "er Ding, about that pledge on NI exemption for employees of new start ups you trailed in your speech - there are a couple of wrinkles that might be indulged in by a lot of existing companies to dramatically reduce their NI bill to "zero" too, and I think we ought to "limit it a bit" assuming we can't, without you losing a lot of face, kill it stone dead"..
VFTS, make those numbers 7 and 8 on the list :-)
The husband/wife split would be another one (see also 'business splitting' for VAT purposes).
Anon, yes, the idea has been around for a year or so and has now been slimmed down to its core. Which is still shit, of course.
3) I assume the NI exemption is for the first 10 jobs but the 11th and subsequent jobs are taxed at the normal NI rate. There is therefore no disincentive to taking on extra staff.
I am sure clever drafting can address some of your other possible loopholes, although it would seem better just to get rid of employer NI altogether and I hope that at some point in this parliament that will be done.
"Oh dear oh dear" is fine, as is "sigh" - provided neither is directed at me (tee hee).
J, that's possible, I suppose, but still leads to significant distortions. What happens if the newly created ten-man band is just about profitable without NI but once NI comes back in it goes under? As you say they ought to get rid of Employer's NI, full stop.
During my time as an undergraduate at the LSE in the early 60s, in one of our courses on applied economics, we had to do some research - and write a collective paper - on the effects of regional aid (within the UK). To our instructor's surprise - and agreement - we found that regional aid was a total waste of money. This was the conclusion reached by a class of undergraduates who had been brought up and educated in the glory days of statist economics. BTW, in the same course, we identified that the Beeching cuts - aimed at producing a profitable British Railways (or, more to the point, minimising its drain on the Treasury) - were also a complete crock.
Regional aid - or whatever it's called - is purely a bribe in respect of the areas who are named as its beneficiaries. Of course, like overseas aid, the bribe is to those who administer the cash-flow (and a psychic but not material bribe to the voters living in those areas who are fooled every time into believing they're getting something for nothing). Those for whom the money is (supposedly) intended would be better served by lower taxes and a free(r) market. I don't expect those sentiments to be welcome in Whitehall, town hall, the administering quangos or CCHQ.
U, exactly. Now, if only somebody could design a tax system which automatically compensates for relative differences in the embedded productive capacity of different regions...
I was told off for using the *sigh* tag
I didn't object to the tag; just the place where you were using it: as part of an argument. It's not persuasive to sigh at people as an argument.
However... it's use in this case would seem justified. You are stating indisputables. The fact that the clowns at the wheel don't see it, is *sigh* worthy.
On your point 3; "the first ten" doesn't seem like it is a tax break that goes away for all of them when you employee employee 11; you just don't get the break for them? I wouldn't put it past them to put that sort of craziness in, but the statement you quoted doesn't say that it only applies to companies with ten or fewer... it says the first ten employees.
What I find bizarre about this is that they recognise that NI is a barrier to employment, otherwise why create such an incentive, but then stop at ten employees. Why? Is ten the most we want employed? Why not "no NI for anyone" if it is such a good incentive (which it obviously is)?
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