Well, actually, no

Charging national insurance at 12% on all employees, including those earning over £50,000 a year, could raise £14 billion of extra tax a year

That would put us well over the peak of the Laffer Curve. Which, in that Saez and Diamond paper was put at 54% in taxes paid upon employment income. Note the careful description there. Not income tax, but taxes paid upon employment income and as the paper says, that includes employer paid employment taxes.

40 or 45% income tax, 12% employee NI, 13.8% employer NI – we’re well over 54%, aren’t we?

33 thoughts on “Well, actually, no”

  1. 14 billion? Peanuts. Just cancel HS2 and the Foreign Aid budget. Depending on your assumptions that would give you over 30 billion.

    If doing those two simple things requires the Defenestration of Boris, so be it. He’s well past his sell by date. Then you could de-greenify government policy, call and win a snap election, and roar with merry laughter. Whosoever “you” might be.

  2. “13.8% employer NI” I’m not sure if that should be counted undiscounted towards the Laffer curve. Yes it is a tax on employment but only matters to me as a potential employee when that rise in employer NI translates to a drop in my total compensation. I’m pretty sure that a drop in employer NI would not be readily shared out to the workers.

  3. And, while we are at it, how about pay cuts for schoolteachers and GPs, to note their contributions during the pandemic? And university Vice-Chancellors and their acolytes too? Did anyone else do badly (apart from Cabinet Ministers and the Shadow Cabinet, and the Sir Humphrey’s, for whom it goes without saying)?

    A small state bounty could then be afforded for the workers who kept the shops going, water, gas, electricity and whatnot. Come to think of it, that could be paid neatly by a retrospective cut in National Insurance for everyone who is not an employee of the state.

  4. @Dearie me.

    Indeed. My suggestion was that so long as Lockdowns/Furlough pay continued, all MPs and civil servants advising on such matters should lose 20% of their pay with a random 1 in 10 selected each month to lose all their pay. Might have focused their attention a bit more on the damage lockdown was causing.

  5. We tried something similar with the 50% income tax not long ago. It didn’t raise any money. The IFS described it as (from memory) “strolling around the summit of the Laffer Curve”.

  6. A rise in employers NI will lead to a reduction in what is being offered to the marginal worker as the pay we were going to offer you has gone from something to nothing as we realise we can’t increase the headcount, won’t fill vacancies or make someone redundant.

  7. But of course we can offer a lifetime of benefits to Afghans and their extended families.

    I just can’t imagine how this government could be more shit.

  8. Yes it is a tax on employment but only matters to me as a potential employee when that rise in employer NI translates to a drop in my total compensation.

    But it does. If you tax something you get less of it. Taxing employment means fewer employees. Potential employees are then competing for fewer positions, which lessens their bargaining power re compensation.

    I’m pretty sure that a drop in employer NI would not be readily shared out to the workers.

    Not immediately, no, of course not. But very soon employers will employ more people and that demand will improve the compensation offered.

    Same with corporation tax. Tax incidence makes it fall on the workers. Someone we know mentions it a lot.

  9. (40+12+13.8)/1.138 = 58% [ Employers national insurance belongs on the denominator as well as the numerator because it is part of the total ]

  10. Indeed. My suggestion was that so long as Lockdowns/Furlough pay continued, all MPs and civil servants advising on such matters should lose 20% of their pay with a random 1 in 10 selected each month to lose all their pay. Might have focused their attention a bit more on the damage lockdown was causing.

    I suggested something very similar on John Redwood’s blog. I said that any politician voting for restrictions (and their advisors of course) should receive no pay all the while the lockdowns are in place.

    Strangely, it didn’t make it through the moderation queue.

  11. “a drop in employer NI would not be readily shared out to the workers”: except insofar as the concepts of supply, demand, and competition apply to the labour markets. Which they do seem to.

  12. From the IFS (2015-16 document so may be not to the penny correct as of now, but…):
    Of the big three taxes:
    — a 1 percentage point rise in all rates of income tax would raise £5.5 billion;
    — a 1 percentage point rise in all employee and self-employed National Insurance contribution (NIC) rates would raise £4.9 billion; and
    — a 1 percentage point rise in the main rate of VAT would raise £5.2 billion.

    Also, an additional £11 billion could be raised by making the prescription charge £2 for each item and no freebies……….

    And I know they won’t raise as much as they think they will.

    If we are all in this together it’s about time we all started paying for it.

  13. Funny old thing Employers’ NIC. Since it’s a Corporation Tax deduction, the net cost to a company is 11.178%

    Funny old thing National Insurance anyway. If you run your own company and take a salary of £8,840 and the rest of your income in dividends and there isn’t any NIC to pay but there’s still a NI Contribution year toward the pittance that is the State Pension.

  14. @dearieme

    “…Just cancel HS2 and the Foreign Aid budget …. Then … de-greenify government policy”

    This, +100

    Surely, a govt proposing to break manifesto commitment to not raise taxes must at the very least demonstrate its found every saving that can be found??

    And really ought to explain their position and call an election upon it

  15. 40%? 45%?…
    you are forgetting that the income tax soars to 60% between £100k and $125k.
    With employers NI also.
    If you add on full employees NI (instead of the 2% it is at that level) you end up with an employees deduction of 72%, plus the employers 13.8% or whatever.
    62% tax rate is bad enough. 72% forget it. Frankly, I rather stay in bed.

  16. Isn’t there a problem in that they are also messing around with the minimum wage (forced increasing) so increase in employers NI can only lead to lower employment as there’s a wage floor and they can’t drop below it.

  17. Bloke in North Dorset

    Andrew C,

    Funny old thing Employers’ NIC. Since it’s a Corporation Tax deduction, the net cost to a company is 11.178%

    Yes, but not very helpful if your struggling and making a loss, which is most businesses if we’re to believe some of the horror stories, or at the investment stage of a start-up. Unless I’ve missed something?

  18. You’re starting from (or, at least, accepting) the position that the citizens serve their state, so it’s legitimate to try to get as much out of them as possible – a bit like a farmer making the biggest profit on livestock. The citizens should not serve the state: the state should serve the citizens.

    And, of course, the Laffer curve is pseudo-mathematical nonsense.

  19. @Charles

    The Laffer curve is a mathematical fact – the shape of the curve and where we are on the curve is the only point of discussion.

  20. TtC: it was almost literally that realization that propelled me to move from UK to USA. Now paying a lot less on income and at the margins, even though at higher income and living in California. (For now: TX/TN is looking increasingly attractive)

    But sure, BoJo, raise all the taxes. What are people going to do, leave?

  21. BlokeInTejas(InNormandy)

    Hopper

    Please don’t come to Texas. Nothing personal, but there’s a boatload of CA f*ckwits who, having trashed their own state with their insane choices, have moved to Texas and are active in politics and pushing for the same BS.

    Screws it up for the rest of us, to say the least.

  22. BiT – you’ll be glad to learn that a) I can’t vote, and b) nevertheless, am very strongly aligned with Constitutional rights, let’s say. My view of improving .ca.us politics currently involves lampposts, a lot of rope, and shall-issue, for starters. Check out my blog posts 🙂

  23. Funny old thing National Insurance anyway. If you run your own company and take a salary of £8,840 and the rest of your income in dividends and there isn’t any NIC to pay but there’s still a NI Contribution year toward the pittance that is the State Pension.

    Been there, done that for a few years. It of course makes a nonsense of the argument against rolling NI into IT that NI is needed for the purposes of “contributions-based” benefits; if you’re deemd as contributing if you earn over a certain level, there’s no need for the faff of running the rest of the NI system…

  24. @Hopper
    But sure, BoJo, raise all the taxes. What are people going to do, leave?
    No, retire.

    It is exactly this nonsense, and similar penal marginal rates on pensions, exceeding 100% in some cases, that have persuaded many GPs to retire 10 or 15 years early.
    The NHS staffing crisis is entirely created by the chancellor with his evil & retrospective extortion.

    Pay 70% or pay 0%? What would you choose? Once you accept mortality, there’s no point working for the state for the time you have left.

  25. Last one out switch off the... Oh..

    Lilley’s preferred option for care costs, or some variation on it, seems rather more sane.

    Presumably their real objective here is a tax grab to (start to) pay for the last two years govt-mandated economic suicide, and that before even beginning to think about starting to pay for the climate wheezes

  26. @StuartB
    I’m afraid Charles has a flat earther mentality about Laffer. Several of the mathematicians and actuaries on here have tried to explain it to him, but he’s not in listening mode.

  27. @Stuart Boggins
    The Laffer curve is nonsense because it is an intuitive equivalent to Rolle’s theorem, but unlike a proper mathematical application of that theorem, it makes invalid assumptions. There is no reason to suppose that tax raised is a (mathematical) function of tax rate, nor if it were that it is continuous in the interval. It also is simply incorrect to claim that 100% tax raises no tax, so the endpoints are not equal.

    It’s nothing more than intuition dressed up to look mathematical.

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