Blog: When Paying Tax Could Save You Money
Shelagh Young reflects on the budget announcements in the context of our recent Great Risk Transfer research.
30th October 2024
Shelagh Young reflects on today’s budget announcements in the context of our recent Great Risk Transfer research on the changed relationship between employees and employers in the context of financial wellbeing.
Has the Government broken its promise not to increase taxes on working people by increasing employer’s payroll costs?
No one can pretend that the 1.2% increase in employer’s National Insurance Contributions (NICS) and reduction in the threshold at which this tax kicks in announced in Rachel Reeves’s budget statement won’t increase costs to business.
But, is arguing, as many critics have, that this amounts to a tax on workers backed by evidence?
The immediate budget post-mortem, driven partly by the opposition’s outraged response, delved into questions of whether voters were betrayed. But while the trustworthiness of Governments obviously matters, these are surely not the most important questions to be focused on in the aftermath of what is generally agreed to have been a very significant budget indeed.
Trotting out common sense assumptions that a tax on employers is a tax on the workers simply isn’t good enough.
Superficially it seems obvious that many employers will pass on this cost - for example in higher prices to consumers, lower wage rises, redundancies or reductions in growth through recruitment meaning a contraction of the jobs market.
Indeed the same was said when the National Minimum Wage (NMW) was first introduced and will no doubt be said about other measures in this budget which will increase the NMW significantly in 2025.
Unfortunately for the critics there is very little evidence that such measures do have the dire negative impact on “working people” so often predicted by the business sector and its representatives.
For one thing this budget, like others before it, maintained and, in some cases increased the corporate welfare measures that will reduce the impact on some employers.
In the case of NICS, the Employment Allowance was increased significantly meaning that the smallest employers with four or fewer employees on the NMW will pay no employer NICS at all. But, over time, there will be other ways in which many employers can compensate for higher taxes.
Paying more to spend less
For example, if this budget really does lead to greater investment in the NHS and other important public services, might employers need to spend less on mitigating the impact of poor public services by providing ever more costly employee benefits?
Earlier this year we explored how employers were addressing diminishing employee wellbeing. Measures being taken ranged from enhanced private healthcare plans including services such as “virtual” GPs to schemes offering loans for rent deposits.
The reasons for investing in employee wellbeing were clear - employers are seeking to reduce absenteeism and increase productivity by mitigating the stresses and strains affecting their employees many of which they attribute to matters such as the difficulty people have in accessing NHS care, expensive housing and childcare and even, poor public transport
So the question we would like to add into the budget debate mix is why employers and their representatives rarely mention the costs to business of what the Chancellor referred to as public services that are “on their knees”?
Whether or when this budget will achieve the Government’s stated goal of “rebuilding Britain” remains to be seen but the hope that it could help rebalance the burden of risk employers currently bear for the poor health and wellbeing of their workers should not be ignored.
Scottish Government consultation response: tax policy and the budget
DHI’s response to the Scottish Government’s consultation on tax policy and the budget.
In autumn 2021 the Scottish Government sought views on the overarching approach to tax policy, through Scotland’s first framework for tax.
Our consultation draws on:
The largest multi generational research project in Scotland in the last five years, The Action Project. In 2020-21 we brought together people from across Scotland to consider the actions needed to move faster towards a more prosperous, sustainable, inclusive and fair country. Over 5,000 people from across Scotland told us their actions to help Scotland build forward better.
We worked with partners to reach people of all ages and backgrounds across Scotland. These included U3A, the Scottish Youth Parliament, the Children’s Parliament and local organisations like InspirAlba in Campbeltown and Resonate Together in Alloa. By listening to the many voices and then analysing themes and patterns, WhatsYourAction.scot presents the findings and encourages others to have their say.
Our 2021 briefing paper on multi-year budgeting, explains how a new agreement on multi-year budgeting between the Scottish Government and Scottish Parliament will help long-term thinking and support a more open conversation about spending plans and investment choices.
David Hume Institute events and discussions such as Talking Tax with Charlotte Barbour and Dr Arun Advani last year.
Summary
DHI welcomes the framework. The clear, accessible language is critical to create more understanding about the important role tax plays in society. Research conversations as part of the Action Project emphasised the lack of understanding of Scotland’s tax powers.
Having a coherent narrative that joins up tax policy with the National Performance Framework and Climate Change Plan helps businesses and investors plan for the medium term direction of travel.
Simplification and public understanding are rightly identified as important factors to underpin a fair tax system and are critical to accountability. The framework’s movement away from language like “tax burden” is important for a fresh conversation.
DHI welcomes the proposed Citizen Assembly on council tax - this is an area that is widely recognised as needing reform but has become highly political. It came up consistently in Professor Duncan Maclennan’s work A Scotland of Better Places. Continuing the status quo indefinitely should not be an option and this work should be expedited.
Scottish Parliament consultation response: Public Finances in 2022-23
DHI Response to the Scottish Parliament’s call for views on Scotland’s public finances in 2022-23 and the impact of COVID.
Response from the David Hume Institute to the Scottish Parliament call for views on Scotland’s public finances in 2022-23 and the impact of COVID
About our submission
DHI welcomes the opportunity to respond to the Finance and Public Administration Committee’s call for views on Scotland’s public finances 2022-23 and the impact of Covid.
Our submission draws on evidence from:
The largest multi generational research project in Scotland in the last five years, The Action Project. In 2020-21 we brought together people from across Scotland to consider the actions needed to move faster towards a more prosperous, sustainable, inclusive and fair country. Through facilitated conversations with over 5,000 people, we identified actions which will help Scotland build forward better.
Working with partners to reach people of all ages and backgrounds across Scotland. These included U3A, the Scottish Youth Parliament, the Children’s Parliament and local organisations like InspirAlba in Campbeltown and Resonate Together in Alloa. By listening to the many voices and then analysing themes and patterns, WhatsYourAction.scot presents the findings and encourages others to have their say.
Our 2021 briefing paper on multi-year budgeting, which sets out the enabling action needed for the Scottish Government to publish multi-year spending plans.
Summary
We call on the Committee to recommend that the Scottish Government:
Publish draft multi-year spending plans to help longer term planning for service improvement, investment and productivity, and increase transparency over forward planning.
Publish how it has prioritised for a fair and equal recovery, and provide underlying evidence for those priorities, recognising trade offs between shorter and longer term choices.
Link budget priorities to the National Performance Framework and the United Nations Sustainable Development Goals (UNSDGs), using them to analyse how the pandemic has affected some groups and communities worse than others. Continued use of the UNSDGs assists collaboration with other organisations and governments around the world.
Focus on climate action and a fair transition to net zero, faster delivery of digital infrastructure and measures to directly influence reductions in poverty and promote greater inclusivity.
Work to improve Scotland’s places by devolving resources and putting more power in the hands of local communities.
Ensure support for jobs where skills can be developed rather than skills development alone.
Commit to a full review of the Fiscal Framework which considers external changes including the loss of European Funding and new direct spending in Scotland from Westminster as well as the interactions between both devolved and reserved taxes and social securities.