National Insurance up another 0.5%

December 09, 2009 2:17 PM

In our taxpayers' guide (PDF) to the fiscal crisis we reported that analysts were predicting a one per cent rise in both rates of National Insurance. The Government had already increased it by 0.5% in the Budget, now they've announced another increase, for a total rise of 1%. As we said at the time, that means a tax hike on employment:

"Research for the accountancy BDO Stoy Hayward has suggested that the Government may well introduce a 1 per cent increase in national insurance rates for employers and employees.

An increase in employees’ national insurance would effectively operate as an increase in income tax. By contrast, an increase in employers’ national insurance would effectively operate as a tax on employment. As it would increase the cost of taking on workers such a measure would reduce the demand for labour. That would mean workers would either need to accept lower wages than without the new tax or face greater chances of

unemployment.

As of November 2009, nearly 2.5 million Britons are unemployed, or 7.8 per cent of the workforce. Young people, who are likely to be the worst affected by any rise in national insurance as they tend to be lower paid and therefore more easily pushed into unemployment, are facing even higher unemployment rates. Nearly a fifth of those aged 18-24 are unemployed. Even before the crisis, OECD research showed that the proportion of the UK 16-25 population who are not in employment, education or training was 13 per cent, up from 11.6 per cent in 1997. That does not reflect an international pattern as the linear average of the 16-25 not in employment, education or training rate across the OECD has fallen from 12.4 to 12 per cent."

All of the little fiddles that Alistair Darling announced, which he said would help tackle high levels of unemployment, are pretty meaningless in the face of this kind of increase in the tax burden imposed on employing people.

"Research for the accountancy BDO Stoy Hayward has suggested that the Government may well introduce a 1 per cent increase in national insurance rates for employers and employees.

An increase in employees’ national insurance would effectively operate as an increase in income tax. By contrast, an increase in employers’ national insurance would effectively operate as a tax on employment. As it would increase the cost of taking on workers such a measure would reduce the demand for labour. That would mean workers would either need to accept lower wages than without the new tax or face greater chances of

unemployment.

As of November 2009, nearly 2.5 million Britons are unemployed, or 7.8 per cent of the workforce. Young people, who are likely to be the worst affected by any rise in national insurance as they tend to be lower paid and therefore more easily pushed into unemployment, are facing even higher unemployment rates. Nearly a fifth of those aged 18-24 are unemployed. Even before the crisis, OECD research showed that the proportion of the UK 16-25 population who are not in employment, education or training was 13 per cent, up from 11.6 per cent in 1997. That does not reflect an international pattern as the linear average of the 16-25 not in employment, education or training rate across the OECD has fallen from 12.4 to 12 per cent."