Thursday, October 31, 2024
Labour's stealth tax on public services
Opposition politicians have quite rightly attacked the impact of the increase in employers' national insurance contributions on business and whether this measure breaches a Labour manifesto promise. For the record, I think it is a breach, that it will have an impact but that the Chancellor needed to raise money somehow to fill in the financial black hole she inherited.
I also think that if she was going to break a promise, she should have gone the whole hog and put up income taxes for higher earners, while doing away with the Tories freeze on tax thresholds, but that's another story.
The investment in public services is also welcome, if it is properly directed. Throwing money at the health service to increase capacity and cut waiting lists is much-needed, but if the government don't fix social care as well then it will prove to be an ineffective short-term measure.
Wales gets an extra £1.7 billion through the Barnett formula from this budget, most of which I expect to be given to health, but the budget also contains significant costs for public services, effectively clawing back large sums of money for the Treasury.
The public sector is most probably the biggest employer in the UK and that means that any change to employer's national insurance contributions will hit them hard. Potentially, hundreds of millions of pounds will have to be paid back to the UK government, money that might otherwise be used to improve or consolidate services.
In Swansea, an initial, back-of-the-envelope calculation by the head of finance has priced it tentatively as now costing 2.5 per cent for the council's average worker, not just that headline 1.2 per cent uplift. The Institute o Fiscal Studies came to the same conclusion of 2.5 per cent per median 30k worker. That is a total hit on one council of £7 million pounds, of which £2.4 million will come out of school budgets.
Multiply that by 22 in Wales and then add in the health service, who employ huge numbers of people, universities, who are already looking at making redundancies, the further education sector, Natural Resources Wales and countless other organisations set up to manage public services. And the n apply it to the rest of the UK.
All the indications are that whatever, Rachel Reeves gave in extra cash to these services will be ameliorated by this extra tax. Not so good news after all.
The investment in public services is also welcome, if it is properly directed. Throwing money at the health service to increase capacity and cut waiting lists is much-needed, but if the government don't fix social care as well then it will prove to be an ineffective short-term measure.
Wales gets an extra £1.7 billion through the Barnett formula from this budget, most of which I expect to be given to health, but the budget also contains significant costs for public services, effectively clawing back large sums of money for the Treasury.
The public sector is most probably the biggest employer in the UK and that means that any change to employer's national insurance contributions will hit them hard. Potentially, hundreds of millions of pounds will have to be paid back to the UK government, money that might otherwise be used to improve or consolidate services.
In Swansea, an initial, back-of-the-envelope calculation by the head of finance has priced it tentatively as now costing 2.5 per cent for the council's average worker, not just that headline 1.2 per cent uplift. The Institute o Fiscal Studies came to the same conclusion of 2.5 per cent per median 30k worker. That is a total hit on one council of £7 million pounds, of which £2.4 million will come out of school budgets.
Multiply that by 22 in Wales and then add in the health service, who employ huge numbers of people, universities, who are already looking at making redundancies, the further education sector, Natural Resources Wales and countless other organisations set up to manage public services. And the n apply it to the rest of the UK.
All the indications are that whatever, Rachel Reeves gave in extra cash to these services will be ameliorated by this extra tax. Not so good news after all.
