SELF INFLICTED DAMAGEThe figures show the excess cost to the employer compared to the real purchasing power of net wages ie the zero figure represents wages net of sales taxes. Thus for someone to earn £10,000 of net purchasing power, the employer must pay a surcharge of 60% on top, ie £16,000. Any figure above the zero line constitutes the what used to be called the "tax wedge" and forms a tax barrier against employment and work. Amongst other effects, it means that low-skilled labour becomes hard to employ or find work in self-employment, and that low level work such as street cleaning, care work and basic services do not get done or are automated out of existence with labour being replaced by investment in capital which would otherwise be unecessary.
HOW THESE FIGURES WERE WORKED OUT
To receive £100 worth of goods and services one must spend around £120, since that £100 worth of goods will be subject to VAT and other sales taxes. To give an employee £120 in net pay, an employer incurs a cost which includes not only employer's national insurance but also employee's national insurance and income tax nominally paid by the employee even though the true incidence of the tax is on the employer. Thus, in the example, an employer incurs a gross cost of £16k to pay an employee £10k in real ie after tax, purchasing power. This is the basis of these figures, which were prepared by the Campaign's resident qualified accountant using current UK tax rates.
|< Prev||Next >|