Debate Magazine

Economic Myths: Taxes on Public Sector Wages

Posted on the 29 March 2016 by Markwadsworth @Mark_Wadsworth

We've done this one often enough, but here we go again.
From the BBC:
More than six million UK workers could find their take-home pay cut from April after the new flat-rate state pension comes into effect.
The move, first announced in the 2013 Budget, will boost the Treasury's coffers by £5.5bn a year. Most of that sum will be raised from public sector employers and employees by higher National Insurance payments…

The whole move to the flat-rate state pension is much to be welcomed of course, it's more like a 'Citizen's Pension'. This has the added bonus of highlighting that National Insurance is just another tax on earnings i.e. a very bad tax indeed, so hopefully we can move away from this bullshit that "National Insurance pays for my pension" or "I've paid for my own state pension, I'm just getting back the National Insurance I paid over a lifetime." This economic myth is so deeply engrained that people get quite angry when you challenge it.
The result being that people can no longer 'contract out' and pay the reduced NI rate if they are in an employer pension scheme…
Employers will now have to pay higher NI, amounting to that 3.4% of their employees' relevant earnings. The government said in 2013 that the new system was fairer for the self-employed and many mothers.
Public sector employers will pay £3.33bn and employees £1.37bn more to the Treasury in 2016-17 as a result of bringing in the pension earlier, according to the Treasury. From the private sector, employers will pay an extra £570m and employees £235m.

If public sector employers have to pay £3.33 bn more to the Treasury, then unless public sector employees reduce their payrolls by one or two percent, doesn't that their budgets, paid out by the Treasury, will also have to increase by £3.33 bn?
So this is neither a boost nor a real cost to the Treasury at all, is it?


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