Are UK Payroll Taxes A Tax On Jobs?
Traditionally, Labour has been the party of big government, Conservative the party of small government, and Liberal Democrats the party of middle class thinkers (which often resulted in big government).
All parties are incredibly sensitive to how they are portrayed by the media and go out of their way to avoid bad headlines. And the rate of income tax is one area where they get quite creative — higher income tax is a BAD THING, yet government has to raise its money from somewhere.
Of course the obvious alternative to income tax is a sales tax, but with most countries in Europe now with sales taxes at 19% (on top of any other tax rates) and UK at 17.5%, this has already started to generate negative headlines.
There's an election coming up, so a new rabbit needs to be pulled from the hat.
Well, Margaret Thatcher (Prime Minister 1979-1997, Conservative) started it in order to keep income tax low she started raising a tax on payroll: national insurance. Successive governments and successive budgets have slipped this one in — it doesn't get the headlines that income tax does, but it raises a lot of money. Part of it is hidden from the voting public — the Employer Contribution doesn't appear as a deduction from salary on people's pay slips.
|Earnings annual (GBP)||Earnings (EUR)||Earnings (USD)||% income tax||% National Insurance||Total Tax % of payroll|
Because national insurance taxes the low- and middle-income, it offsets tax for the highest earners. I suppose this makes sense; anyone earning that much will find legitimate ways to be tax efficient anyway (small businesses pay the corporation tax and then pay dividends to their owners instead of paying their owners more and having to pay the NI) but this flies in the face of what a Labour Government are supposed to stand for, and really does represent a tax on jobs.