Tuesday, 7 March 2017

Aligning National Insurance rates - half right, but apart from that, completely wrong.

From The Daily Mail:

Philip Hammond was last night urged to abandon plans for a £1billion tax raid on the self-employed, amid warnings it would wreck Britain’s growing entrepreneurial culture.

The Chancellor is reported to be planning a rise in National Insurance rates for the self-employed in tomorrow’s Budget to bring them closer to the level paid by those in salaried jobs. The move could eventually see the National Insurance rate paid by self-employed people rise from 9 per cent to 12 per cent.

Closer? It's not much closer is it? Employees suffer two levels of NIC, which cost 22.7% of gross pay (£25.80/£113.80); the self employed suffer one layer which costs 9%. NICs are a regressive tax and the rates above £43,000 are lower; this largely cancels out the fact that income tax is higher above £43,000 (i.e. the system is a lot flatter than people think).

I'm all in favour of aligning rates, but how about reducing the NICs suffered by employees as well and let the two meet in the middle?

Chris Bryce, chief executive of the Association of Independent Professionals and the Self Employed, said the Chancellor should hold a full consultation before deciding on a massive hit on the sector.

He added: ‘If the Chancellor were to increase National Insurance contributions for the self-employed, a large number of low-paid people could lose out on a significant amount of income.’

Three per cent of not much is not much, is it?

One former minister warned that Mr Hammond would face a major backlash if he pressed ahead with the full rise.

‘We can’t, on the one hand, claim that we are the party of the strivers while, on the other, say we’re going to hit millions of them with a massive tax bill,’ he said.

How about the 'millions' of employees whom you are already slapping with an NI bill that is twice as high?

Treasury sources did not dispute that the overall tax burden could rise slightly as a result of tomorrow’s Budget measures, despite warnings the UK is already heading for the highest tax burden since the 1980s.

Funny how the Tories get away with increasing taxes while still running huge deficits, exactly the thing they are always accusing Labour of having done. History shows that over the long run, Labour run smaller deficits/are more likely to reduce the national debt and do not collect more in tax.

The only good news from all this is that all parties appear to agree that National Insurance Contributions are indeed just another tax.


paulc156 said...

Tories 'get away with it' as you say, because of a supine and somewhat cretinous media including a relatively cowed BBC. If the Beeb give them too hard a time they'll just cut the licence fee/make them limit news content on their website or similar or just sound generally menacing toward them...in a 'you wouldn't want anything bad to happen would you?' kind of way.

Mike W said...

paulc 156, you missed out 'A ganster' in 'kind of way'.

Mark re your last comment. NI is 'indeed just another tax'. Is it not the case that it is also one of the worst? A two tier Poll Tax. At the moment this is why I tend to put NI at the top of the list for when you are doing our first Georgist budget circa 2027 ;)

Off Topic,I did notice this in the Wiki entry on the UK Poll Tax:

This distinction:

'Her successor, John Major, replaced the poll tax with the Council Tax, similar to the rating system that preceded the Poll Tax.
The main differences were that it was levied on capital value rather than notional rental value of a property'

Have they left out 'supposed to be levied'? And do they not come to the same amount over the long term anyway?

Mark Wadsworth said...

PC, even labour MPs go along with the myth, it's called Indian bicycle marketing.

MW, yes, makes little difference using rental or capital values, unless it's proper lvt at high rates.

Mark Wadsworth said...

MW, although NICs are patently the most unfair and regressive of our major taxes*, in terms of killing business, jobs and output, VAT is the worst.

* NIC revenues are roughly equal to NHS spend. Why dump the cost of the NHS solely on employees?

Mike W said...

MW, although NICs are patently the most unfair and regressive of our major taxes*, in terms of killing business, jobs and output, VAT is the worst.

I understand,you can view what I wrote above as NI goes first, and the bad 'economic taxes' second and third. To be clear, Vat, Income tax and NI all on the list to be reduced to near zero as we progress with LVT. How much you reduce each by, as we go year by year, is open to better, more detailed analysis of the kind you suggest above.

Off Topic again: One more thing Mark, and I don't want my personal scrapes to get in the way,but is it fair/useful to call the BBC licence a 'Poll Tax'too?

Mark Wadsworth said...

MW, agreed on VAT, NIC and income tax being phased out in step, let's not bicker over which one first (they are all awful).

I have always said that the TV licence fee is a Poll Tax. I have also always said that Inheritance Tax is a jealousy surcharge. Both raise relatively small amounts of revenue for a huge amount of administration - £3 to £4 billion each. Merge them both into LVT, say I.

Striebs said...

No explicit mention of employees being subject to both employers NIC and employees NIC .

Self-employed get less for their NIC's so should pay less in - e.g. no statutory sick pay or maternity pay . Also if a company goes bust and has insufficient money to pay staff terminations , the state picks up the bill .

What about people who get a reduction in NIC whilst they are paying in to defined benefits pension schemes ? Can that continue to be justified ?

For many , the only alternative to self-employment is unemployment .
They should not be made to feel like enemies of the state .

Agree that it would be better to reduce employment taxes on employees rather than try to close a gap by increasing them on self employed .

How much NIC is being paid by all these ICT visa cheap labour fast tracked imports ?

Dinero said...

Whats the opinion round here.
To whom is income tax an expense, the employee, the employer, a bit of both.

Shiney said...


As an employer....a bit of both, although mainly on the employee i'd say.

But, I think it depends on the price elasticity of demand for the employees skill set (i.e. the thing they are selling to me) AND, to a certain extent, the same for my product. Plus whether I can substitute capital equipment for people. In the short term I'm ambivalent as I have a gross payroll cost, which is the important bit, from which various deductions/payments are made.

So... it depends!

Striebs said...

Dinero ,

Employment taxes (income tax , employers NIC , employees NIC's are all a cost to the employee .

They all have to be passed on to a customer . They all influence how competitive a countries workers are globally and consequently can price them out of work .

We should not forget that the cost of living also determines how high wages have to be and can render a countries workers uncompetitive .