Health and social care levy undermines job market
It’s safe to say that the national insurance increase to pay for health and social care hasn’t been well received by all. I, however, feel more concerned about the impact than annoyed at the increase.
Of course it’s absolutely vital we provide funding to an NHS and social care system that has been underfunded for too long – especially following the Covid-19 pandemic – but my concern is whether national insurance really is the way to go.
Why? Businesses are facing financial ruin. The past 18 months have been the most financially and emotionally challenging for people nationwide. When you mix in the ramifications of Brexit – the job market is at a low and the country faces a recruitment and supply chain crisis – you can’t help but wonder whether the NI Increase will make matters worse.
Now is not the time to burden businesses with extra costs for employing people AND increasing their overheads at the same time. With the Coronavirus Job Retention Scheme also coming to an end on 30 September, you’d think the government might have considered other options. Instead, it’s taken the easiest route of increasing what is plain and simply a tax on jobs, reducing the possibility of job growth at a time when it is most needed.
Lower earners hit hardest
So what effect is it going to have? I predict the lower earners will feel it the worst.
The dividend tax increase, meanwhile, is likely to affect small business owners who received no help from the government throughout the pandemic.
For employees, the increase disproportionately affects lower-paid earners, with those earning above £50,000 being taxed 2%, rising to 3.25% next year. It’s fair to assume that higher earners may be much less impacted by the increase than those earning around the £10,000 mark, whilst younger earners at the bottom of the pay structure will feel the effect.
For employers, the additional costs will be taken from the budget used to hire new people, offer pay rises or pay current salaries. After all their recent struggles, how can employers be expected to foot the bill when many are struggling to stay afloat?
With this in mind, can you imagine hiring is at the top of their priority? Obviously not, and this will also impact those looking for new employment. With fewer positions available and more people people expected to fall into unemployment with furlough ending, this can’t go well.
Businesses are already in a fragile state. But funding must be found to help the NHS and social care sector. So, where could the money come from instead?
Raising capital gains tax (CGT) is often toyed with by the government and put forward by opposition parties as a fund-raising option, since rates are relatively low compared to other tax rankings. Should the increase have been implemented on CGT to the same rate as income tax, the funds raised could reach £17bn as opposed to the £12bn expected from the national insurance hike. So, why isn’t this potential funding source being tapped in some capacity?
Inheritance tax is also often shrugged off as a “death tax”. But 1 in 10 adults inherits half as much from their parents than the average person earns in a lifetime.
These alternatives would be more beneficial in ensuring that the job market isn’t impacted, as they don’t hit earnings, but profits and gains. Using these methods means employers are less likely have to choose between hiring, firing or going under and employees aren’t having their pockets stripped.
A tax on jobs
The issue isn’t the increase. It’s where the increase is to be implemented. Solving the long-standing issue of social care is a must, and the NHS needed support before the strain it has faced throughout the pandemic.
But increasing national insurance is only going hurt the job market when we should be focussing on how we can build it up.
Make no mistake. This is a tax on wages and jobs. There is still a large proportion of young workers trying to find jobs, whose numbers are likely to increase once the furlough scheme ends. Raising national insurance will make it much harder for businesses to keep staff on payroll and remain open for recruitment.