The pol's and their chums in the media have been busily giving us the impression that the Lib-Cons shelved Labour's plans to increase National Insurance contributions by 2p in the £ (Employee's NIC up from 10% to 11%; Employer's NIC up from 12.8% to 13.8%) and instead hiked VAT from 17.5% to 20%.
See for example last week's FT:
As the coalition strives to deal with the mess in the public finances, the issue of how hard its deficit-cutting measures will hit the poor has consistently proved a political irritant.
The argument was reignited on Tuesday after Alan Johnson said the rise in value added tax to 20 per cent “hits the poorest hardest”, only for George Osborne, the chancellor, to respond that the increase was more “progressive” than Labour’s planned rise in national insurance contributions...
Mr Osborne said a VAT rise would be more progressive than increasing national insurance contributions, “because of the economic damage of an income tax or national insurance tax rise, and the people most likely to be affected by that are people on low incomes.”
Or at least that's what the words 'Labour's planned rise' and 'a VAT rise would be more progressive that increasing national insurance contributions' suggest, is it not?
Nothing of the sort.
HM Revenue & Customs have finally updated their tables for next year's tax rates, and it is quite clear that the Lib-Cons are merrily pressing ahead with 'Labour's planned rise' as well as increasing VAT.
Whether or not Labour would have increased VAT as well (this being an EU-harmonisation thing) is a moot point, I strongly suspect they would have done, but hey.
Monday 10 January 2011
"Labour’s planned rise in national insurance contributions"
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You'll probably think i'm a moron for asking this given that I should already know but what's the difference in the primary threshold of £139 and the secondary threshold of £136?
SW, 'primary' means Employee (so you pay 12% on weekly earnings over £139) and 'secondary' means Employer (so employer pays 13.8% on weekly earnings over £136).
It's all part of the tax simplification thing, together with aligning personal allowance for income tax with NI thresholds, not.
How to rid ourselves of these excrescences?
To be fair, from the budget this year:
The Government inherited plans for National Insurance rates to increase by 1 per cent in April 2011. The negative effect
of the employer rate rise will be largely reversed by increasing the
threshold for employer National Insurance Contributions (NICs) by
£21 a week above indexation.
JH, I dunno.
AC: "The negative effect of the employer rate rise will be largely reversed by increasing the threshold for employer National Insurance Contributions (NICs) by £21 a week above indexation."
Sure, but
a) it's the tax rate and not the total revenue that causes the damage (add 2% extra WTC withdrawal and 2.5% extra VAT to that overall tax rate and we are really in trouble!)
b) why is it easy to increase the threshold but impossible to reverse a planned increase that hasn't happened yet?
An increase in VAT will surely only discourage spending, slowing the rate of recovering and causing untold job loss. These deficit-cutting measures will certainly hit the poor. Neither welcoming would be the option of raising national insurance. What a state we find our economy.
"SW, 'primary' means Employee (so you pay 12% on weekly earnings over £139) and 'secondary' means Employer (so employer pays 13.8% on weekly earnings over £136).
It's all part of the tax simplification thing, together with aligning personal allowance for income tax with NI thresholds, not."
I actually figured out what they meant afterwards as its mentioned within the text next to the % rates. I thought that the changes the Tories were supposed to make to the NI rise were to reduce the impact on employers. Seems to me that having a lower threshold than employees does the opposite....
So given a £139 weekly threshold this means that we get about £7,228 (more likely £7,225) annual threshold per employment? Can't grumble at that when i'm taking advantage of the lovely loophole of two employments myself.
SR, agreed, but don't fall into their trap of saying "VAT discourages spending" (because 'spending' is seen as something bad, unless you are spending your money on an overvalued house), the way I see it is "VAT discourages the free exchange of goods and services".
SW: "So given a £139 weekly threshold this means that we get about £7,228 (more likely £7,225) annual threshold per employment?"
Yes, the normal personal allowance for tax is set to rise to £7,475, but why not cut to the chase and increase all thresholds straight to £10,000 without increasing tax rates? Win win! It's easily affordable if you ditch Working Tax Credits, reduce tax breaks for pensions etc.
You don't need to add the "why not cut to the chase and increase all thresholds straight to £10,000 without increasing tax rates? Win win! It's easily affordable if you ditch Working Tax Credits, reduce tax breaks for pensions etc." for my benefit... I'm fully aware of the benefits of doing so however i'm not one of the gits in the treasury writing the law...
SW, with you I am preaching to the converted, I just stuck that in for other people :-)
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