Taxing jobs: practical policies for a pay recovery

Document type
Report
Author(s)
Tinsley, Matthew
Publisher
Policy Exchange
Date of publication
27 March 2014
Subject(s)
Employment, Poverty Alleviation Welfare Benefits and Financial Inclusion
Collection
Social welfare
Material type
Reports

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Taxing Jobs argues that because pay and productivity have remained strongly linked over the course of the recession, wages will begin to rise and productivity will improve as employers take on more staff. Providing a boost to the labour market in the form of a cut to the payroll tax for businesses would speed up the rate at which companies take on more staff. This would reduce unemployment more quickly and force employers to improve productivity and therefore pay among their workforces.

The paper urges the Chancellor to increase the threshold at which all employers, regardless of size, pay National Insurance for each employee they have on their books. It recommends:

  • Increasing the 2015/16 employer National Insurance threshold from £157 to £192 per week (the equivalent of £10,000 per year). This would save employers £250 a year for every person they employ and would mean that employers would no longer pay NI for 900,000 employees. The initiative would reduce government revenues by approximately £5.4billion in 2015/16.
  • The government should de-prioritise increasing Income Tax personal allowance, employee National Insurance or increasing the value of tax credits. At a time when increasing wages relies on utilising the excess supply in the labour market, these approaches do not encourage firms to bring on new workers or utilise their existing workers more. They therefore subsidise low pay, rather than addressing the cause of low pay following the financial crisis.
  • The Government should allow the Minimum Wage to return to its 2007 value with two more above-inflation rises in 2015 and 2016. However any permanent increase in the number of workers affected should be resisted. Any significant structural changes and complications (such as having different rates per sector or region) should also be resisted.

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