In his March 1998 Budget speech, Gordon Brown announced that, in order to
"help create jobs" and "make it easier for companies....to take on men and
women who want to return to work", he is going to introduce, as from April
1999, an employers' national insurance contribution consisting of a 12.2%
tax levied on each employee's wages above 81 pounds per week. In other
words, he is going to convert employers' NICs into a work-spreading tax,
one which will effectively provide employers with a work subsidy of 81 x
0.122 = 9.88 pounds per week per employee. So it is evident that GB is
unconvinced by arguments (such as those advanced by Gavin Cameron and Eero
Carroll in their postings of 26.5.98 to 2.6.98) that such a work-spreading
tax will not reduce unemployment.
My proposal for a work-spreading tax is to build on this WST which has
already been adopted, by changing the present income tax and social
security tax paid by the employees, into an equivalent tax to be paid by
the employer, along with the Employer's NIC. This will almost quadruple the
effective work subsidy which employers have already been promised, bringing
the total subsidy per worker up to 38.60 pounds per week. That is, for each
extra worker an employer takes on to do a given amount of work, he will pay
38.60 pounds less in tax. Clearly, this change can be expected to
strengthen the effect of Gordon Brown's original measure, in reducing
unemployment.
As I pointed out before, this subsidy is costless, since it doesn't require
any increase in taxation. It just makes use of the existing system's
unemployment-reducing potential, which is currently going to waste.
However, the following qualification should be made to this. If this change
does in fact spread the work to more workers, but produces no increase, or
insufficient increase, in the total of earnings and work done, then because
of the progressivity of the taxation, the total tax yield will go down.
Thus if total yield is to be maintained, the PERCENTAGE RATE of taxation
might have to be increased, though not of course the VOLUME of taxation.
(Details of WST are given in my contribution of 24/5/98 and in my paper
"Reforming the tax and benefit system to reduce unemployment", available
at:
http://www.democdesignforum.demon.co.uk/unemp.nexus.html)
********************************************
Dr David Chapman
Email: chapman@democdesignforum.demon.co.uk
Democracy Design Forum
Coles House, Buxhall, Stowmarket, Suffolk IP14 3EB, UK
Tel: +44 (0) 1449 736 223
Fax: +44 (0) 1449 612 274
Website: http://www.democdesignforum.demon.co.uk/index.html
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