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EDITIONS
 Wednesday, 17 April, 2002, 19:04 GMT 20:04 UK
City view: A tax on jobs


Gordon Brown has announced plenty of tax credits for both small and large businesses, but the City of London still takes a dim view of the overall tax package.
Labour won't like it, but the City has already dubbed the chancellor's big tax changes as a tax on jobs.

National Insurance, the second tax on pay packets. is going up by one percentage point.

But that tax is paid by both workers and bosses.

So while employees are handing over more of their pay packet to the government, employers will also have to shell out more for each worker on their books.

The big victims are going to be the big employers. Retailers, with their armies of shop staff, will be among the worst hit

The more workers they employ, the more they will have to pay.

Businesses say that will make it more expensive to hire and keep staff, and could make them more reluctant to hire new workers in the future.

The City takes a deep breath

The bill that business will face from this tax change is quite staggering. According to the government's own financial statement, the country's employers will have to stump up another 3.9bn next year, and 4.1bn in 2004.

You could hear the sharp intake of breath in the City when the chancellor announced the tax change right at the end of his speech.

There had been speculation beforehand that workers would have to pay more out of their pay packets. But the higher tax bill for bosses was a surprise.

A sting in the tail, more than one trader said.

Big bill for NHS

And once they worked out what the chancellor was up to, and what it would cost, the dealers started to work out who would suffer most.

The big victims are going to be the big employers. Retailers, with their armies of shop staff, will be among the worst hit.

Despite the job losses in recent years, the banks and big industrial giants will also face a sharp rise in their tax bills.

And, such irony, the health industry will suffer from the tax increases that will provide extra funding for the NHS.

The tax on jobs takes no account of whether you are making or losing money

The NHS itself will get one of the biggest bills, because of the hundreds of thousands of doctors, nurses, clerical staff, porters and so many more on its payroll.

The UK's world-beating pharmaceutical companies, which rely on thousands of highly skilled scientists and researchers, will also have to pay more, although they have gained from the new tax breaks for research and development.

Small firms worried

Even companies that are in the Emergency Ward themselves will have to pay up.

Corus, the loss making steel business, will face a big bill, even though it's struggling to survive in the world's markets.

The tax on jobs takes no account of whether you are making or losing money.

It's not just big companies with big city connections.

People who run small firms have told the BBC about their concerns.

Paul Theakston, who runs the Black Sheep Brewery in Masham, Yorkshire, told Radio 5 Live that the National Insurance changes would make him "more thoughtful" about hiring new staff.

"It's becoming more and more expensive all the time," he says.

Additional tax

Hugh Morgan-Williams, who heads the electronics firm Canford Audio, in Washington, Tyne & Wear, told BBC News 24 that the changes would cost his firm an extra 30,000 a year.

It is money which he says will "have to come out of profits".

The Forum of Small Businesses says the higher tax bill for bosses would "destroy jobs".

For workers, the hike in National Insurance (NI) contributions could turn out to be a triple tax whammy.

It's not just another 1% on top of your existing NI contributions.

The extra 1% will apply to every pound you earn above your tax-free allowance. The ceiling that currently caps your payments if you are a big earner will not apply to this rise.

In effect, the chancellor has brought in a new, additional, National Insurance tax, with no upper limit.

Windfall tax

And the amount of money that you are allowed to earn before you pay NI contributions will be frozen next year.

By not increasing the allowance in line with prices, the chancellor has brought in another little tax rise by the back door.

The government's figures reveal that workers will end up paying almost as much as bosses.

They're just glad he didn't increase VAT as well

Freezing the allowance, raising the NI rate by 1%, and making it apply to every penny you earn above the existing ceiling, will cost British workers a grand total of 3.6bn next year, and 3.7bn in 2004.

There's also another little tax tucked away in the detail, a windfall tax on the oil industry.

Sigh of relief

The chancellor's helping himself to another 10% of the profits made by the oil companies in the North Sea. Some financial experts say that rise has been balanced out by some new tax allowances the chancellor has given the industry.

But the government's Budget bible says otherwise.

It says the oil industry will end up paying the government another 100m this year, an extra 450m next year, and another 600m in 2004.

An extra billion pounds over three years isn't a back-breaking sum for the oil industry, given its huge profits, but it was enough to send oil shares lower in late trading.

There has been one sigh of relief, though. It comes from the service industries that rely on our spending for their living.

The chancellor may have increased their wage bills, he may have left the rest of us with less in our own pockets, but they're just glad he didn't increase VAT as well.


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