tiintax

How much does it cost to employ someone?

Let’s say an average wage is £27,000 – the kind of wage an officer in the Civil Service might get, for example.

The employer pays £27,000 plus employer’s NICs of around 3726 (£27k x 13.8%).  Call it about £30726 (ignoring other costs like accommodation, insurance…).

The employee gets a tax free allowance of £10,000 and a NICs threshold of 5772 and pays tax at 20% and NICs at 12% on the rest.  Say £3400 and £2548 respectively.

So the employer pays £30726 of which the employee gets £21,052 to take home and the government gets £9674.

OK.  Now.  Suppose the person doesn’t have a job.  Instead, they’re unemployed.  How much does that cost?

The government pays the person £72.4 a week in JSA.  They also pay them things like housing benefit (or temporary help with mortgage interest payments, if they become unemployed after they have started buying a house)  Those amounts depend on the person’s personal circumstances and I’ve run a few different scenarios through the helpful gov.uk benefits calculators.  If I were single with no dependants and no income and living in my current house with my current mortgage and council tax, then apparently I might be entitled to £157 a week in JSA, mortgage interest help and council tax support.  That’s £8164 a year (and, yes, is time-limited and dependent on circumstances but I take it to be a reasonable proxy for the sort of sum an ordinary working person might be entitled to)

Now let’s look from the point of view of the government.

Because of course the government doesn’t actually “pay” £30726 for an employee at £27000 a year.  The tax and NICs go back to the government, so the effective cost to the government is the amount the employee takes home, i.e. £21052.

And the difference between employing a Civil Servant on £27k and having them sit on JSA must, logically, therefore be the difference between £21052 and £8164, that is £12,888.

You see where I’m going with this, of course?  The government actually gets twenty seven grands-worth of work for twelve and a half grand.

Which is why, in the middle of a recession, it’s a daft idea to consider civil servants purely as a cost and not also as a benefit.

What kind of benefit?  Aside from the benefit of having money circulating in the economy, the well-being of the person employed in a proper job, and the virtuous circle of having working people in work and spending their money on fares to work, sandwiches at lunchtime and new clothes in which to look professional?

Well let’s think about tax penalties for a minute.  There is a bit of a theme developing in the tax press about penalties: are they fixed at the right levels?  Are they being used for a sensible purpose?  Are they actually achieving the objective of changing behaviour?

Here’s an idea.  Instead of letting trivial penalties mount up till they’re “worth” collecting, why not employ a new cadre of – let’s call them “advisory collectors”.  Send them out, in pairs, to knock on the doors of people who have incurred £100 penalties for failure to make CIS returns, or are late with their income tax self assessments, or have incurred 2% or 5% VAT penalties for an amount smaller than £400.  Let them collect the relatively small amounts of penalties due, and at the same time give advice and assistance to prevent the problem recurring or the penalties accumulating.

Useful work, I’m sure you’ll agree.  Why, they might even pay for themselves…