One of the many problems the government has got itself into over tax rises that may or may not appear in the upcoming Budget is an oversimplification of where the cost of a certain tax falls.
Ministers and their supporters talk about Capital Gains Tax as if it only lands on rich people selling off a painting or two, when in reality it’s often another way of taxing businesses and income.
When it comes to non-doms (and here they’re following an unhelpful playbook started by their predecessors in office) they talk about finding ways to tax this cohort as if they don’t already contribute billions to the public finances.
Perhaps the most odious simplification is Labour’s oft-repeated line that they won’t raise taxes “on working people.” This is sophistry, and not terribly sophisticated sophistry at that.
The most offensive case of ministerial dishonesty in the pre-Budget tax debate is the claim that employer national insurance is not a tax “on working people” at all. Labour’s cast-iron manifesto commitment not to raise national insurance is fundamentally incompatible with the widely-held expectation that the employers’ part of this payroll tax will be hiked on 30 October.
Paul Johnson of the IFS has said that such a change would be “a straightforward breach” of the manifesto promise. Helpfully, the i newspaper has unearthed a 2021 report by the Office for Budget Responsibility (a body that Labour believes to be a supreme authority) in which they conclude that while technically employer NI is a tax on business, “the economic incidence of the tax is passed through entirely to lower real wages in the medium term.”
Or, as Dr Madsen Pirie of the Adam Smith Institute puts it, Labour’s insistence that this tax doesn’t hit working people is either “blatant ignorance of blatant deceit.” He goes on to make the wider point that employer NI “forms part of…the wage pool, the money that employees cost [businesses],” adding “If the employer did not have to pay it to the Treasury it would be available to increase the amount paid to employees.”
This means, of course, that forcing employers to pay more of this particular tax will make it more expensive to take on an employee, and harder to raise pay.
In short, the government is pulling a fast one.