Ridiculous analysis in the Guardian on the jobs tax

April 28, 2010 12:53 PM

The Guardian has what sounds, in the first paragraph, like a dynamite story about the National Insurance (NI) hike and its potential impact on employment:

"Business leaders who backed the Tory campaign against national insurance rises have ignored evidence from their own companies which shows no correlation between employment and social security costs."

When you read on it doesn't look quite as powerful, though:

"Analysis by the Guardian of the accounts of the six biggest UK companies behind the attack on Labour's plans show that while social security costs have increased since 2003, the last time a percentage point was added to the cost of NIC, so too has employment. Only Whitbread, the leisure company, has a smaller workforce which it says is accounted for by a substantial restructuring of the business."

That is utterly shoddy.  The point is that a hike in NI leads to employment being lower than it would otherwise be.  No one has suggested it is the only factor driving employment.  From 2003 till the recent recession the economy was growing and that meant higher employment, but it is entirely possible that the rise in employment - including at the firms the Guardian has studied - would have been higher still without the 2003 NI hike.

Over the next few years, as the economy recovers from the recession, we should expect that employment will rise.  No one has ever argued that won't happen with a hike in NI.  The point is that we can expect fewer jobs to be created, and lower employment than would otherwise be the case, with higher NI.  The specific firms the Guardian has looked at may well increase employment in the next few years too, but their bosses are saying that they are not likely to be able to create as many jobs if the tax on those jobs is higher.

The Guardian article quotes one of the businessmen, Simon Wolfson, who nails the issue:

"Simon Wolfson, chief executive of Next, responded that an analysis of the issue based purely on the bare numbers in the accounts was tendentious. "You cannot just look at the figures without looking at what has been going on in the business and the economy in which it operates," he said. "What is clear, from our experience, is that an increase in NIC represents an incentive to mechanise and to export jobs. It is also a tax which takes money out of the consumer's pocket and we know there is a very clear relationship between sales and jobs."

If the Guardian really think this kind of analysis is credible then they should drop their support for green taxes and regulations.  Taxes on flights have gone up in recent years but people are flying more as well.  Taxes on petrol have gone up over a number of years in which people have also driven more.

Then again, on the Guardian's logic the fact that in some years this century global temperatures have gone down, while the stock of greenhouse gas emissions has gone up, would disprove global warming.  All sorts of observed relationships between different variables fall apart if you don't allow for them sometimes being overwhelmed by other factors.

That is leaving aside another issue.  Even if national insurance doesn't mean fewer jobs, that's because people accept lower pay instead.  The tax hike is bad news for ordinary workers either way.

The Guardian has what sounds, in the first paragraph, like a dynamite story about the National Insurance (NI) hike and its potential impact on employment:

"Business leaders who backed the Tory campaign against national insurance rises have ignored evidence from their own companies which shows no correlation between employment and social security costs."

When you read on it doesn't look quite as powerful, though:

"Analysis by the Guardian of the accounts of the six biggest UK companies behind the attack on Labour's plans show that while social security costs have increased since 2003, the last time a percentage point was added to the cost of NIC, so too has employment. Only Whitbread, the leisure company, has a smaller workforce which it says is accounted for by a substantial restructuring of the business."

That is utterly shoddy.  The point is that a hike in NI leads to employment being lower than it would otherwise be.  No one has suggested it is the only factor driving employment.  From 2003 till the recent recession the economy was growing and that meant higher employment, but it is entirely possible that the rise in employment - including at the firms the Guardian has studied - would have been higher still without the 2003 NI hike.

Over the next few years, as the economy recovers from the recession, we should expect that employment will rise.  No one has ever argued that won't happen with a hike in NI.  The point is that we can expect fewer jobs to be created, and lower employment than would otherwise be the case, with higher NI.  The specific firms the Guardian has looked at may well increase employment in the next few years too, but their bosses are saying that they are not likely to be able to create as many jobs if the tax on those jobs is higher.

The Guardian article quotes one of the businessmen, Simon Wolfson, who nails the issue:

"Simon Wolfson, chief executive of Next, responded that an analysis of the issue based purely on the bare numbers in the accounts was tendentious. "You cannot just look at the figures without looking at what has been going on in the business and the economy in which it operates," he said. "What is clear, from our experience, is that an increase in NIC represents an incentive to mechanise and to export jobs. It is also a tax which takes money out of the consumer's pocket and we know there is a very clear relationship between sales and jobs."

If the Guardian really think this kind of analysis is credible then they should drop their support for green taxes and regulations.  Taxes on flights have gone up in recent years but people are flying more as well.  Taxes on petrol have gone up over a number of years in which people have also driven more.

Then again, on the Guardian's logic the fact that in some years this century global temperatures have gone down, while the stock of greenhouse gas emissions has gone up, would disprove global warming.  All sorts of observed relationships between different variables fall apart if you don't allow for them sometimes being overwhelmed by other factors.

That is leaving aside another issue.  Even if national insurance doesn't mean fewer jobs, that's because people accept lower pay instead.  The tax hike is bad news for ordinary workers either way.

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