The New Employment Tax

The planned rise in National Insurance contributions will result in a tax system that is unnecessarily complex, distorts the labour market and shifts the tax burden further onto workers and away from the retired. It is a sub-optimal way to raise the extra resources needed to fund the NHS and social care.

Pub. Date
22 October, 2021
Pub. Type

The government announced the employment tax increase in September adds needless complexity to the tax system, encourages self-employment rather than employment, and hits hardest the labour-intensive sectors that suffered most from Covid. It will encourage a shift away from labour-intensive sectors and reduce the UK's international competitiveness. The levy will add to the squeeze on real household incomes implied by surging inflation and, therefore, subtract from consumer and business spending. Higher health and social spending will add slightly more to GDP than the levy subtracts in the short run, but this will fade over time and GDP could end up slightly lower after three years. One possible intention is to increase this payroll tax further in the future, probably by linking it to NHS and social care outlays.