Philip Whiteley's Blog

December 17, 2009

Taxing hard work

Filed under: Uncategorized — felipewh @ 9:33 am

Yet another tax increase on income, with the Government’s extra 0.5% on National Insurance. Not all NI is contributory – an increasing amount is pure tax. http://www.payrollworld.com/magazine/article.php?id=845. In the UK all three parties seem to regard people’s hard-earned pay as ripe for more and more impost. Labour is piling up the NI; the Lib Dems want to replace a local property tax with a local income tax (bureaucratic nightmare). Even the Conservatives, traditionally in favour of income tax cuts, are prioritising inheritance instead (see blog 7 December, ‘Brown is wrong on Eton, but …’). This fits with a long-established bias to prioritise ‘old money’ over entrepreneurial endeavour.

For years, I’ve railed against businesses making decisions on the basis of visible costs, without paying sufficient attention to value or to indirect costs. Redundancy programmes have sometimes been deeper than they should as a result. But the higher the tax on employment, the more the arithmetic changes. The sum of £10 saved through lower costs benefits you by £10. Extra value added by hiring someone is always less than the headline figure because of tax. As a self-employed individual, if I save £10 through lower expenditure, I’m £10 better off. If I earn £10 more I’m only £8 better off at basic rate or £6 at higher rate (not that I’ve quite reached that, personally).

The best way to reduce tax is to introduce the management principles of Deming to the public sector. This could slash budgets by 10, 20 maybe 30% while improving services. In the mean time, we should tax property and inheritance, not hard work.

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