Employers’ tax incidence 2013

The figures, prepared by our resident accountant from the latest tax tables, show the excess cost to the employer compared to the real purchasing power of net wages ie the zero figure represents wages net of sales taxes. Thus for someone to earn £10,000 of net purchasing power, the employer must pay a surcharge of 55% on top, down from 60% (see last year’s figures for comparison) Any figure above the zero line in the diagram constitutes the what used to be called the “tax wedge” and forms a tax barrier against employment and work. Amongst other effects, it means that low-skilled labour becomes hard to employ or find work in self-employment. Low level work such as street cleaning, care work and basic services does not get done or is automated out of existence with labour being replaced by investment in capital which would otherwise be unnecessary. Scottish prawns are flown to Thailand for peeling when there is a potential workforce of unemployed at the port where the prawns are caught.

This is the effect of tax incidence – that the cost of a tax is does not necessarily fall on the person or company formally responsible for making the payment. The incidence of tax on employers in the UK is by no means the worst in Europe – it is significantly higher elsewhere. It helps to explain the very high rate of unemployment amongst young people and immigrants there – and could have something to do with riots that break out in immigrant areas when the warm weather arrives.