As someone who’s involved in small business made up of five part-time staff, I’ve been amazed no one has flagged this before. “Unforced error” is the right term - it was so obvious there would be (presumably) unintended consequences. No one is going out of business because of a relatively small increase to marginal rates; but slashing the threshold will make a surprisingly high number of small businesses unviable.
To be fair, this is where the other part of her measures come in - in terms of reducing what would be the bill by 4bn by making more firms not eligible to pay. But obviously I'm not an accountant so I don't know what effect that will have in practice on particular companies, and whether e.g. tech startups in the 10-20 employee range might be protected from it in practice
It will I think have a massive effect on the government’s efforts to reduce worklessness due to long term sickness etc. The route into work for many is part time employment and the government has now created a massive disincentive for employers especially in the 5-50 employees bracket
Beautifully argued as ever. I think the reason Reeves did it this way is the usual reason these day: optics. No one notices adjusting thresholds, but everyone notices the change in the headline rate of any tax. So putting up the rate by < 2% is a win presentationally, even if the overall effect is detrimental and regressive.
One other thing it’s worth bearing in mind with Employer’s NI is the longer-term incidence. The econometrics on this issues show that it falls on wages. So, over time, the increased NI will mostly be experienced by workers in terms of smaller pay increases.
Yes, I agree this is true (and you can see it very clearly in the OBR analysis for example - Table 3.2 has a reduction in tax take of about 8 billion by 2029-30 due to this effect and reduced profits presumably depressing corporation tax https://obr.uk/efo/economic-and-fiscal-outlook-october-2024/#chapter-3). I just felt like that point has been covered elsewhere, whereas there'd been less focus on this stuff
Certainly in terms of this, the farm stuff and the winter fuel payments (plus the Cabinet being split on assisted dying) it feels like any honeymoon period is well and truly over now! Plus I think the stuff about her CV and LinkedIn profile isn't as much of a dead cat as some people would like it to be.
I agree with almost everything, except perhaps about who should provide the scrutiny. The UK has 650 people whose job it is to scrutinize legislation and budgets.
As someone who’s involved in small business made up of five part-time staff, I’ve been amazed no one has flagged this before. “Unforced error” is the right term - it was so obvious there would be (presumably) unintended consequences. No one is going out of business because of a relatively small increase to marginal rates; but slashing the threshold will make a surprisingly high number of small businesses unviable.
To be fair, this is where the other part of her measures come in - in terms of reducing what would be the bill by 4bn by making more firms not eligible to pay. But obviously I'm not an accountant so I don't know what effect that will have in practice on particular companies, and whether e.g. tech startups in the 10-20 employee range might be protected from it in practice
It will I think have a massive effect on the government’s efforts to reduce worklessness due to long term sickness etc. The route into work for many is part time employment and the government has now created a massive disincentive for employers especially in the 5-50 employees bracket
Beautifully argued as ever. I think the reason Reeves did it this way is the usual reason these day: optics. No one notices adjusting thresholds, but everyone notices the change in the headline rate of any tax. So putting up the rate by < 2% is a win presentationally, even if the overall effect is detrimental and regressive.
I agree that was very likely her thinking on this
Your pieces are always thoughtful and convincing - thanks for putting the effort in to write them
Thanks, it's kind of therapeutic ranting on here though!
One other thing it’s worth bearing in mind with Employer’s NI is the longer-term incidence. The econometrics on this issues show that it falls on wages. So, over time, the increased NI will mostly be experienced by workers in terms of smaller pay increases.
Yes, I agree this is true (and you can see it very clearly in the OBR analysis for example - Table 3.2 has a reduction in tax take of about 8 billion by 2029-30 due to this effect and reduced profits presumably depressing corporation tax https://obr.uk/efo/economic-and-fiscal-outlook-october-2024/#chapter-3). I just felt like that point has been covered elsewhere, whereas there'd been less focus on this stuff
I think they’ve dropped a real howler here and it will come back and bite them.
Like you I’m disappointed the media haven’t critiqued it.
There’s also a degree of arrogance with Reeves, so she can never be wrong. A suck it up attitude that will be her undoing.
Certainly in terms of this, the farm stuff and the winter fuel payments (plus the Cabinet being split on assisted dying) it feels like any honeymoon period is well and truly over now! Plus I think the stuff about her CV and LinkedIn profile isn't as much of a dead cat as some people would like it to be.
I agree with almost everything, except perhaps about who should provide the scrutiny. The UK has 650 people whose job it is to scrutinize legislation and budgets.
Personally I would have raised VAT.
I guess that's true, except there's 402 of them who are fairly heavily incentivised not to rock the boat