Friday 25 March 2022

A "contributory" benefit is still a benefit.

From The Daily Express:

'Pension is NOT a benefit!' Furious caller rages at Sunak on Jeremy Vine - 'I paid in'

THE ABANDONMENT of the triple lock this year has left many people in fury as their state pension is not keeping pace with inflation...

[Caller] Jean said: "I have a small company pension because I worked from leaving school at 15, but my pension is £189. As far as I'm concerned, it is not a benefit. It is something I have paid for. I have paid National Insurance contributions since I was 15, it is not a benefit.

"To be told that you're living on benefits and for the this man to stand there and say he has given work to hard working people. I'm sorry we were hard working people from the 1960s."


The comments section is a hoot. DGWGA explains it...

It is a benefit. No one has paid into anything. You may have paid tax, you may have paid national insurance but you have not paid into any fund. You just need to look at the only true measure of the government's finances, The Whole of Government Accounts (WGA) to appreciate that there is no fund, and indeed, there is no liability in the accounts for the perceived "accrued rights" which are estimated to be approximately £4 trillion. That is £4,000 billion.

Surprisingly, he or she hasn't been bombarded by haters calling them a Commie. Presumably cold facts and logic went straight over their heads.

21 comments:

Bayard said...

The government is on slightly dodgy ground here. If they insist that pensions are a benefit, then that means that they acknowledge that "Notional Insurance" is just a tax on labour. I suppose they are banking on the fact that most people won't work that through.
The tax incidence of NI is on the employer, mostly, so the angry caller was wrong in another way. It was her employer who paid all those "contributions", not her.

Sobers said...

"The tax incidence of NI is on the employer, mostly, so the angry caller was wrong in another way. It was her employer who paid all those "contributions", not her."

Thats not right, surely? The employer physically paid all the NI, in that they either withheld some of the salary as tax, or paid employers NI direct to HMRC without the employee ever even seeing nominally on a wage slip, but the true incidence of all NI must be on the employee - in the absence of it employers would have a larger pot of available cash to pay employees and wages would be bid up as a result.

Mark Wadsworth said...

B, S. The incidence is surely on employees.

Who is less price sensitive?

Employer has a pot available and gets the cheapest workers he can within that budget. He can sack or add staff, or shut down or move abroad or automate.

Employee has not much choice, it's basically work or starve. His only choice is to take the best paying job.

So I agree with S.

Mark Wadsworth said...

More evidence: I have a lot of clients whose senior people are not on the payroll, they just put in invoices for (say) £5,000 a month to save the NIC, there's also less hassle to employer with contracts and 'employment rights'.

I tell them this is very naughty and they should be on PAYE. If they go on PAYE, their new salary is usually a lot lower, say £4,000, because the employer knows there will be Employer's NIC and also 5% pension contributions, plus holiday pay, statutory maternity pay, redundancy pay etc.

So who bears the NIC (and pension contributions etc)? The employee of course.

Bayard said...

Mark, S,

My reasoning is that the potential employee, when looking for the "best-paying job" is only interested in take home pay, i.e. after tax and NI are taken off. Sure, if NI was abolished, the employer would have more money in the pot, but, as you say, it doesn't work like that, the employer is employing the employee for the least take-home pay the employee is prepared to accept. The fact that the employer can afford to pay more, now that NI has been abolished doesn't mean to say he wants to pay more and he will only pass on that saving if forced to do so by either his employees threatening to leave or by government mandate. So the tax incidence is on the employer.

Mark Wadsworth said...

B, employees want as much as they can get (for a given amount of effort, experience, skills etc) - as you say, they compare net income (but that is the same as comparing gross income, assuming all jobs taxed at the same rates, which by and large they are).

But nearly all employees must work or starve. They are not very price sensitive, collectively. They'll take the best they can get.

Employers are price sensitive because they have alternatives. They can hire more, downsize, automate, move abroad etc. Their decision is not "employ people or starve", their decision is "how can we maximise profit?". So they compare "marginal revenue from employing one more person" with "marginal cost of employing that person".

Marginal revenue is fixed by 'the markets', that leaves an amount employers are willing to pay to employ one more employee. Employer couldn't care less whether that is net cash to employee or associated payroll taxes.

There is a mad Communist theory that evil employers will push wages down to subsistence level. In a free capitalist economy, that is clearly not the case - or else why do some people get paid a lot more than that? It's because some jobs add more marginal revenue than others.

If your view is correct and employers bear most of payroll taxes, then what happens if they push Employer's NIC from 15% up to 50% or 100%?

We know they won't all merrily hand that over - it would push most into making losses. So employees have to take it on the chin - better a lower paying job than being unemployed.

Bayard said...

Extreme cases don't prove anything. Hooke's Law, which is that the extension of a spring is proportional to the force upon it, fails at the point where the spring is taken beyond its elastic limit. That doesn't invalidate Hooke's Law.

"They are not very price sensitive, collectively. They'll take the best they can get."

I think I sense the Myth of Readily Available Labour here. ISTM that most economic theory (and all Labour Party thinking) is based on large employers of unskilled labour, where workers were pretty much interchangeable. By and large, those employers have gone. OK, you might get 100 candidates applying for a job, but 99 of them will be unsuitable if you are lucky, otherwise it will be all of them, so most employers have much less wriggle room than economic theory would suppose. Especially at the moment, an awful lot of posts go unfilled because employers can't find anyone to do them.

Labour is just another input cost. Nearly all businesses buy for the minimum possible and sell for the maximum the market can bear. Input costs have no bearing on output costs in such a situation. The calculation the employer has to make is at what price point an extra employee will add more value than the marginal cost of employing them. A rise in NI will simply add to the cost of labour and shift what the employer can offer downwards, which is more likely to make the difference between getting someone and not getting someone than it is between getting someone at wage A and getting someone at wage B. Most of the feasible applicants for a particular job, which is tending to be a smaller and smaller set of people, will be looking for more or less the same money.

Shiney said...

Chaps

Calm down.

Tax incidence is 'complicated' and, like any tax, NI (plus other related payroll costs - increased protection via law, more H&S regs etc) fall 'in some combination' on workers, employers (i.e. shareholders) and their customers via increased prices.

As Mark points out its about price sensitivity.

So given that, how the fuck can the government predict second, third and forth order effects from any change - apart from the obvious one that we'd all do 'more' of whatever it is they are taxing if the y just didn't. They have no clue at all.

Bayard said...

"So given that, how the fuck can the government predict second, third and forth order effects from any change"

I have thought for a long time that most government activity is like the priests in ancient times doing stuff to "make sure" the days got longer again in the spring.

L fairfax said...

A friend who I will not name worked as a long term supply teacher.
The agency told her to fiddle her status so she would not be an employee.
I am not sure how they justified this - she couldn't send someone else to do her work.

Mark Wadsworth said...

Sh, you are a small employer, as is Lola. You can have the casting vote on this one :-)

LF, our tax system is stupid. If all earned income were taxed at the same (preferably low) rate, then people would be indifferent between employment, self-employment or dividends.

Shiney said...

@MW

Tax incidence is a subject worthy of a phd - which I don't, and will never, have so I'll pass. Suffice to say...

* in my business/industry
* at our physical location
* at this present moment in time
* for the skills we need

then the incidence of ANY increase in labour cost (tax, whatever... see above) will fall on the business and, marginally, on our customers where we can increase prices. Not on the workforce.

For other businesses, with different skill requirements in different places at different times the split will be different.... obvs.

I've just mentioned FOUR dimensions. Name ANY politician, of whatever political stripe, can think in any more than one dimension? Which is why I said they never consider the overall effect - because they can't.

Bayard said...

SH, I think the idea that politician's thinking is one-dimensional credits them with too much breadth of vision.

Mark Wadsworth said...

Sh, that's me told :-)

mombers said...

Even the OBR estimated that 80% of the 1.25% employer NIC increase would be passed on as lower wages. Payroll taxes are thoroughly dishonest, income tax rates bear no relation to the rates that are payable on labour income even without the incidence of employer NICs correctly attributed

Mark Wadsworth said...

M, that's my overall view. But Shiney is an actual employer and said what he said.

Bayard said...

"Even the OBR estimated that 80% of the 1.25% employer NIC increase would be passed on as lower wages."

How is that different from saying that 80%, or whatever, of LVT will be passed on as higher rents?

Shiney said...

@ALL

Basically the answer with tax incidence is 'it depends'. As I said, right now the shareholders of my business pay because the labour market locally is tight. In the past there may have been times when we could say 'suck it up people, you voted for it'.

But this tax will be detrimental to the overall efficiency of things 'coz the gubmint is now nicking "someone's" money and spending it on useless shit rather than leaving it with the person who earned it by adding some value... you know, making something or providing a service someone wants.... and letting then decide on the useless shit they want.

So - it doesn't really matter who 'pays' the tax (labour or capital if you will) its a 'very bad thing' IMHO.

Shiney said...

@Bayard - its the opposite argument.

The OBR is saying higher payroll taxes = lower wages for the supplier of labour (workers)

which is analogous to higher LVT = lower rents for the supplier of 'land' (landlords)

Not 'LVT will be passed on'.

Owners of capital (ME) will substitute labour with capital (we are doing this through capex, changes to working parctices etc etc) so ultimately the higher tax will be 'passed on' as unemployment.

Shiney said...

@M and @MW

Yes, payroll taxes are thoroughly dishonest.

Lola said...

Who pays NIC / Tax etc?
Payment of and incident on are different things.
Generally employees work for the take home pay that they can live on / accept for giving up their time to slave for someone else.
Employers look at the total cost of employment.
In that sense then all the tax and NI is 'paid' by the employer.
But, would the employee get higher pay if all Tax and NIC were scrapped?
I don't think so. There would be a sharing out of the benefits. Employers would look to costs of employment savings and employees would be able to seek a higher market clearing price for their services.
But, we are ignoring 'land rents'. Scrapping tax and NIC would lead to higher rents.. If only there was some way of sorting that?