CBI tax misinformation – employers do not meet the cost of employer’s national insurance contributiuons

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The CBI made a presentation on tax at David Cameron's favourite think tank, the Policy Exchange, last week - and made about as many gaffs in doing so as George Osborne did when delivering his budget.

And as damagingly for them, they delivered at least as many PR disasters because much of what they said was grossly misleading. I'm going to highlight a few in a series of blogs.

Let me turn to the first one - which is their claim the companies pay £163 billion of tax a year. This is a fascinating claim. Most of the time the CBI and its constituents like to claim they don't pay tax at all - and that other people always do on the profits they earn, but never them. This is the so called incidence argument. You can read any amount on this issue by looking at the blogs linked here. Almost invariably business uses the incidence argument to say that because there are no such things as companies - they're just legal fictions, they argue, that are mere agents for their members (even though they have no clue who those members are, where they are, when they're members, or how to attribute their actions to them) they say companies should not be taxed, or should have their tax rates reduced for this reason. Even an HMRC director had the gall to troll out this argument to me recently. 

But then suddenly last week the CBI want to turn the argument on its head and say their taxes must be cut because they pay so much tax. They produced this diagram to prove it:

Look - now they pay corporation tax when it suits them! There's no hint here of the argument that it's actually paid by shareholders (or employees or whoever else they want to pass the buck to). No, here the whole world is weighing on their shoulders.

Unfortunately for them,  much of this diagram is fabrication. Whatever the argument on the incidence of corporation tax (and because I argue shareholders can't usually be identified companies have to be taxed as their agent) the one thing we can be sure of is that employees can be identified. And the one thing that all economists are sure of is that the incidence of employer's national insurance is on labour - and that without it wages would simply be higher instead. Unambiguously this charge is a tax on labour. It's a complete and gross misrepresentation to suggest otherwise - but the CBI are blatantly making that false claim. They're massively overstating the tax they pay as a result.

Some of their other claims are as misleading. Sure they pay business rates - but they get tax relief on doing so. Ordinary people don't. So the real cost is much lower for business. The claim that this sum paid is a cost in the amount for which a cheque is written is in that case simply not true - it's reduced by up to 26% in the period to which this data relates. The information presented is just not comparable with ordinary people (with their council tax bills) as a result although no doubt this data is projected  at them. It's thoroughly misleading - and even just wrong- to make this claim as a result.

And the same is also true of the fuel duty companies pay - and maybe quite a lot of the other taxes too. These numbers are also deliberately overstated because of the tax relief given on them. The net cost to the business of incurring them is lower than shown when compared to households tat get no tax relief on their equivalent spend.

And what is undoubtedly also true is that a great deal of the corporation tax paid is used to effectively cancel the income tax liabilities of people receiving dividends paid out of that income in the UK. Not all of it, of course, but some of it - and to that extent I'd agree with the incidence argument - there the payment of corporation tax by the company is simply as agent for the taxpayer who receives a tax credit as a result - and as such the company does not pay this tax at all, someone else does.

So how much tax does business really pay? Vastly less than £163 billion. And quite emphatically not a penny of the £55.9 billion employer's national insurance - the whole cost of which it born by their employees.

If the CBI wants to talk tax it would become it to present data honestly. But that's not happening here because their real tax bill is way under £100 billion however properly calculated - and it is unbecoming for them to say otherwise.