Thursday, January 20, 2011

Tax twist: BBC compares job losses re VAT vs National Insurance

I'm never sure whether politicians deliberately misquote figures or do so naively. Here's a good recent example related to the question of which was worse, an increase in the so-called 'jobs tax' (Employers' NICs) or the rise in VAT?

The Shadow Chancellor, Alan Johnson, has been saying:
“At the time the Conservatives called the National Insurance increase a tax on jobs. The Chartered Institute of Personnel and Development [CIPD] say that that would have taken 75,000 jobs, VAT would cost 250,000 jobs.”
An editorial in the Times on 5 January was dismissive of the CIPD figures suggesting that:
“[Alan Johnson's] claim that the VAT rise would cost 250,000 jobs appears to be a figure plucked from the ether without supporting evidence.”
This was harsh as shown on the website.

However, the full picture was revealed on 7 January by the BBC's More or Less programme, presented by Tim Harford. A good summary of the key points appears on the XpertHR blog. At the time of writing, the recording is available on BBC iplayer. Personally I enjoy listening to the weekly podcast as it complements the debunking nature of this TaxBuzz blog.

Bottom line
You cannot legitimately compare the forecast impact of job losses that might be caused by the two different tax rises. At least not without also comparing the quantum of tax being raised.

Labour's 'jobs tax' was forecast to start in April 2011 and expected to raise just over £3billion a year. The CIPD estimated this would cause 75,000 job losses by 2015/16.

The VAT rise to 20% started on 4 January and is expected to raise just over £12billion a year. That's 4 times as much as the 'jobs tax'. The CIPD has estimated the VAT rise: "will reduce UK employment by 250,000 over a five year period relative to the level of employment that would otherwise be achieved."

So, even if the CIPD predictions are correct, the impact on jobs will be significantly less than 4 times the impact of a rise in employers' national insurance contributions.

Was Alan Johnson naive or deliberately comparing apples and pears?

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