Blog: When Paying Tax Could Save You Money

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.