Nic Cicutti: The real problem with the Budget is not NI

Nic Cicutti

One of the things that interests me about our view of politicians is the suspicion we feel when they propose plans aimed at tackling long-standing problems they have identified as being in need of a solution but which we would rather they left well alone.

The best example of that is Chancellor Philip Hammond – or Spreadsheet Phil as he is now dubbed by the tabloid press. While patronising towards Hammond, the moniker also paints a picture of a man who is steady and reliable.

Someone who will not take unnecessary risks with your money; whose decisions are based on rational calculations rather than wild or extreme ideological views with no basis in reality.

The problem is that one’s own “reality” can often be at odds with everyone else’s. Take, for example, the explosion of anger from the Conservative press that greeted his Budget announcement of a hike in the Class 4 National Insurance contribution rate for the self-employed from 9 to 10 per cent in April 2018 and 11 per cent the year after. The anger was such that the Chancellor was forced into a U-turn on the move a week later.

Hammond claimed the change was aimed at reducing the gap in NIC rates paid by the employed (currently at 12 per cent) and the self-employed.

He justified this by arguing the self-employed have had access to a new, higher state pension since April last year.

For the so-called “red top” press, however, this approach does not spell fairness at all. As far
as they are concerned, this is a move that penalises hard work and thrift.

Unlike their employed counterparts, the self-employed do not automatically enjoy holidays. If they are ill they either battle through because they cannot afford to take time off or go unpaid until they recover.

My own view (as someone who will be paying several hundred pounds more a year, certainly after April 2019, and with the distinct possibility of NICs being equalised at 12 per cent for both classes of workers at some stage after that) is that I feel a twinge of sympathy for Hammond.

There is a cost to the services we all receive from the state and it is right that, wherever possible, that cost should be shared proportionately among both the employed and self-employed.

As for holidays and sick leave, these are ultimately an element of overall pay for employees. Going without paid holidays is part of the “bargain” we make with ourselves when we take on self-employed status.

My mate Nathan, a self-employed plumber, is a classic example of this. Nathan recently gave up a reasonably well-paid job with a local firm, where the benefits included 20 days paid holiday, a defined contribution pension and some sick leave (not that he has ever made use of it).

He wanted the opportunity to make more money than he would otherwise have earned, to set his own working hours and, most importantly, to be his own boss and to build a business that might be worth something in 20 years’ time when he is closer to retirement. I totally respect his ambitions – but I do not think it is the job of employees across the UK to help him realise them by paying extra taxes on his behalf.

My real gripe with the Chancellor is not so much over the measures he has introduced. For example, the reduction in the dividend tax allowance from £5,000 to £2,000 after April 2018 should be possible to mitigate through a better use of Isas. Besides, using dividends in place of salary has always been a bit of a tax scam.

Lobbing the equivalent of £650m a year over the next three years into social care does little to offset the funding gap that already existed between what councils need and what they have available to spend 

No, the real problem with the Budget was its relative boredom. More accurately, the absence of measures that genuinely consider the needs of millions of hard-working savers and homeowners.

Saga pretty much hit the nail on the head when it described Hammond’s speech as a “Band-Aid Budget” that “kicks the can down the road with several welcome but short -term fixes”.

As Saga director Paul Green argued: “There are no long-term solutions to some of the biggest issues facing today’s over-50s, such as care funding, housing and saving for retirement.”

Lobbing the equivalent of £650m a year over the next three years into social care does little to offset the funding gap that already existed between what councils need and what they have available to spend.

According to research charity the Kings Fund, the publicly funded social care system faces a £1.9bn funding gap from April. The announcement of yet another green paper later this year on long-term funding options for care feels like the issue is being kicked into the long grass.

The even trickier issue of reforming the pensions tax system to ensure the poorest can save more for their retirement has also been completely unaddressed. Lifetime and annual saving limits make little sense and the use of tax incentives that disproportionately benefit the better off does not help.

So contrary to those who prefer a safe pair of hands to radical innovation, I would rather see less of Spreadsheet Phil and more of a Pioneering Phil. The problems we face demand genuine change, not more of the same.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. And, Nic, on the topic of self employed NICs, you have forgotten that the self-employed don’t pay 13.8% employer’s NICs either. So even equalised at 12% for self-employed and employed, the employed are still subsiding the self-employed by a huge margin. Employer’s NI may not ever be seen by the employee, but implicitly their salaries are 13.8% lower than they could be were there no E’er NICs You may have come to the right conclusion, but you left a lot of the argument behind along the way.

  2. NIc, perhaps you could suggest solutions that you would consider if you were Chancellor to these issues.

    Being Chancellor is never going to be the easiest job in Government, and it will always be a job influenced by the senior civil servants in the Treasury and other departments.

    I do agree that NIC’s should be closer to the employee cost for the self employed but why employers have to pay NIC’s to employ an individual is not warranted in my opinion. If they did not they could potentially employ more staff.

  3. Firstly let’s bear in mind that we are ALL too highly taxed. Not necessarily through Income Tax and NI (and its high time this scam was sorted and amalgamated, as in fact it is all tax on income). We are now as highly taxed as we were under the inept Labour governments of the 1970’s, only now we have an inept Tory government. This while we have the highest rate of employment also since the 1970’s – presumably all those employed (whether self employed or not, pay tax)

    The total trawl of Income Tax only amounts to about 27%. The rest is made up of a panoply of other taxes and stealth taxes. At this rate Tax Freedom day will be Christmas Eve. It is nothing new to suggest that a bulldozer needs to be run through our tax code.

    Much of the problem lies in the fact that there is already legislation to tackle the sham self employed, but enforcement is either not being applied or is useless. Pimlico Plumbers was a notable success, but what about all the IT workers and those in our own industry who claim self employment but only work for one entity?

    On the other hand the true self employed (and you are included Nic) are the true entrepreneurs, the most productive in society, the hardest workers and the risk takers, who take less out of the system than the employed and don’t even get Auto Enrolment and fund their own private pension arrangements (if they have any) entirely themselves. Even a mortgage or credit is often harder to come by for the self employed.

    They are in fact the ‘salt of the earth’ and it is a gross distortion to even suggest that the employee subsidises these genuine self employed in any way at all.

    If you want a vibrant economy entrepreneurship needs to be encouraged and giving the self employed a few tax breaks is but a very small way of doing this.

  4. NI across the board should be scrapped and picked up by an increase in income tax ………

    These little taxes NI, VAT?, fuel duty etc etc are just a means for any government to minipulate, and win votes (or lose whichever the case may be) which also makes for a very complicated tax system, where the average man on the street is not expexted to understand.

    In real terms the tax collected, I am led to believe has not really changed since the late 70’s, but every year (sometimes twice) we go through this whole complicated budget (pantomime) thing, where Peter is robbed to pay Paul and then back again over and over again !!! only to end up at the same place it was before

    Akin to the front line in the 1st world war……casualties littered everywhere but we are stuck in the same place we have always been ! just moving 6 foot forward 6ft back !

  5. Reading this excellent article and others of a similar nature, I am reminded that politicians have tended to forget KISS. KEEP IT SIMPLE S**P**. Over the years the tendency has been to tinker with NIC’s etc, rather than looking to bring taxes etc more in line with the current needs of the 21st century and to simplify them.

  6. Well I have thought for a very long time, our National life style is far to expensive. However if we want the health service we have always been used to we have to pay more for it and yes there is going to be some waste. So one day a very intelligent Government will just simply raise income tax across the board. We all use it we should all pay for it and subsidies those who don’t have an income.
    To help sort the cost of age related social care, why not extend the new ISA , not just the young for house purchase and the the 60 somethings for retirement income. Also for those who want to put something aside for long term care. As we know those that go into care don’t use it for long.
    I don’t believe we should just tax the wealthy, I have paid personal tax bills of over £350,000 and while I am happy to help others there is a limit.

  7. It never fails to amaze me how nearly everyone has lost sight of the fact that taxation should ALWAYS be minimised, simply because although it’s necessary, by definition its legalised, legally enforced theft.

    There are vast amounts of money that can be saved within the government budget without affecting the things that people actually need, if there was simply the political will to address those things. Examples are as follows:
    1.) The way that budgets are attributed – If you have a system that means a department or area will get it’s budget cut the next year, if they don’t spend all the money they are given, then you actively discourage efficiency savings and promote a system that says waste money if you need to to spend your budget.
    2.) The unbelievable ways that HMG awards contracts, where a vendor quotes a price, gets the contract then half way through demands 3 times the price because “pigs can suddenly fly” or they forgot to include something in their budget, or because the politicians keep changing their minds about what they want. No chance that system would prevail in the private sector.
    3.) Doing things for the general public that they can do far better and more easily for themselves, the most glaring example of that being “foreign aid”, does anyone honestly think that Joe Public cannot decide what they want to donate to charity?
    4.) The way the system encourages public sector systems to bloat themselves to justify their own existence. The way they are actively encouraged by the system to NOT solve the problems they are supposed to, because otherwise they might do themselves out a job.
    5.) The way politicians, like the Chancellor are not required to have any skills or qualifications in Finance or accounting. How on earth can you be expected to run the nations finances, when you aren’t even qualified to balance your own bank statement?

    The entire system needs a massive overhaul with the emphasis placed firmly back on keeping taxation as low as possible and making the system as efficient as possible. I’m not holding my breath though..

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