Big increase in jobs tax

by Ed Bowsher on 09 December 2009  |  0 comments
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The 'jobs tax' will effectively rise by 2 per cent from 2011. It'll raise plenty of revenue for the government but won't help people trying to get back into work.

Alistair Darling said today that National Insurance Contributions for both employers and employees would rise by 0.5 per cent from April 2011. That sounds like a small rise, but we shouldn't forget that Darling had already announced rises of the same size a year ago, and these rises are also due to be implemented in April 2011.

So total National Insurance Contributions will rise by 2 per cent - half of which will be paid by the employee and half by the employer. In total, these increases will raise £9 billion for the government. I accept that the government needs to increase taxes, but, from an economic perpsective, National Insurance is a poor tax to choose. It makes no sense to make it more expensive for businesses to employ people.

I'm in no doubt Darling has chosen National Insurance for political reasons. He thinks that a rise in National Insurance will trigger fewer negative headlines than an income tax hike. Or a rise in VAT. Or higher property taxes. But any of those taxes would have made more sense from an economic perspective.

I'll leave the last word to accountant Patrick King at MacIntyre Hudson: "This is the closest we have to a tax on jobs. If the Chancellor's aim is an anaemic and jobless recovery, he couldn't have chosen a better measure."