Business supports George Osborne's national insurance cut - Telegraph.
23 business leaders wrote to the Telegraph (surprise, surprise) to say:
The Government’s proposal to increase national insurance, placing an additional tax on jobs, comes at exactly the wrong time in the economic cycle.
It's a blatant pro Tory letter.
Look at some who signed:
Ian Cheshire
Chief Executive, Kingfisher plc
Lord Harris of Peckham
Chairman and Chief Executive, Carpetright plc
Justin King
Chief Executive, J Sainsbury plc
Ben Gordon
Chief Executive, Mothercare plc
Alistair McGeorge
Chief Executive, Matalan
Sir Stuart Rose
Executive Chairman, Marks & Spencer plc
Joseph Wan
Group Chief Executive, Harvey Nichols
Simon Wolfson
Chief Executive, Next plc
Zameer Choudrey
Chief Executive, Bestway Cash & Carry
Yep, they're all retailers, mostly paying minimum wage or little more.
And the change protects those earning less than £20,000.
So what's the beef, apart from politics, and nothing more?
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They are all retailers. How many of their employees earn more than the £20K threshold for the proposed increased NICs?
Sorry, but have I missed the point here? I’m pleased that there is protection for those on really low incomes, but all forms of NI (employees’ and employers’) is just a straight tax on jobs. People still think that in some way NI is used to fund their pensions or the NHS. Nothing could be further from the truth – employees’ NI is just income tax by another name that is used to fund current expenditure whilst employers’ NI is just a double digit block to employers increasing jobs. It would be interesting to see whether the increased income tax take from increasing employment would offset the abolition of employers’ NI!!!
It’s a sad testament to the role that corporate power plays in our political system that a letter by a load of chief execs gets so much publicity. These are the same guys who – presumably – would like to see spending cut asap to reduce the deficit (a deflationary move), and yet they oppose tax increases because they would be deflationary? In terms of the business cycle, it’s a completely inconsistent approach.
Of course, their real agenda is to use unfunded tax cuts to create pressure to slash spending even further. Mandelson was quite right to go on the attack against these guys. It’s playing into Labour’s hands by casting the Tories as the party who favour big business interests against ordinary working people. Labour needs to make sure it makes that point loudly once the election gets underway.
Of course this NI tax is a tax on business that business cannot avoid simply by moving their HQ offshore. Many of these companies are in the service sector. So their turnovers and employees are umbilically tied to the UK mainland where their customer base is. Is it therefore a coincidence that these companies are getting so agitated about a tax that they can’t avoid, as opposed to one like Corporation Tax that many UK companies apparently can and do avoid? Do you have any figures, Richard, detailing how much these 23 companies pay in Corporation Tax?
@Howard
Quite so
Absurd, isn’t it?
Richard
@Cantab83
Not yet – sorry
The data is being worked on though….
Richard
My bet here is that you’ll be disappointed when the corporation tax figures are revealed. Predominantly UK based retailers have little opportunity to reduce their UK corporation tax by moving offshore because the vast majority of their income comes from the UK. The only possible way they could do this is to move offshore (Jersey co that is Irish tax resident perhaps) and tie this in with a low tax financing structure to highly leverage their UK profit base.
The offshore route will only really work for companies that highly fungible/moveable businesses with high value IP.
@Richard
My first reaction to this announcement that employers’ NICs would increase by 1% was that it was indeed a tax on jobs, but then I thought about it more deeply and realised it is not that simple. It all depends on how the employers react to the increase, and they can react in at least four different ways:
(i) Cut the workforce by 1%. So yes this would be a tax on jobs. But we are always being told that the private sector is so efficient that every job they create is necessary to the efficient running of the company. So the reverse argument suggests that job cuts would also be hard to find and the last option considered.
(ii) Reduce wages or wage rises by 1% so that the wage bill stays the same. So in effect it becomes a tax on employees’ earnings.
(iii) Absorb the cost. So now it is a tax on company profits. That may be no bad thing given the amount of tax avoidance that goes on.
(iv) Pass on the cost to customers. This will be possible in a lot of cases because most of the company’s competitors will be similarly hit, particularly in the service sector. This measure is inflationary though and will therefore be equivalent to a small tax on all of us in the long run.
The reality is most employers will mix all four options to spread the pain around and we will all end up paying something in the end. The issue though is how that pain is spread and who ends up paying the most. This measure of raising employers’ NICs places most of the burden on companies, their profits and their higher paid employees. The alternatives (rises in VAT, income tax or employees’ NICs, or cutting public sector jobs) hurt those on low incomes the most, and this will impact more on the wider economy as the poor spend all their income, while the rich don’t. That is why Labour are right and the Tories are wrong.