This is good news, isn’t it? Finding a tax rise that we can all support, one that will aid in closing that yawning gap in the nation’s finances? I think we can confidently expect the TUC, the individual unions and the Labour Party to fall upon this as upon manna from heaven. Why, they might even thank me for noting it and explaining it to them!
One of the basics of the UK tax system is that you get taxed on the total compensation you get from your job, not just the cash you receive. The boss buys you a car, you pay tax. You get free lunches, you pay tax. Free housing? Tax please.
However, sadly, we’re not charging tax on the total compensation that some millions of people receive and we really ought to be. For, as this paper explains, job security is valuable. It’s certainly something that people like for themselves: they value it. It’s also something which the TUC, the unions and the Labour Party say is valuable. That’s why they all keep trying to change the law so that everyone gets more job security.
However, as we know very well, some people have this job security and most don’t. Public sector workers have it and private sector workers don’t: as can be seen by the way that the TUC, every union and the Labour Party is screaming blue bloody murder at the idea that we might cut the public sector largely through natural wastage let alone by actually firing anyone. They don’t do that when we lose our jobs, do they?
As that paper also points out, that job security is valued by those who receive it at some 20% of their wages. Thus the public sector workers are getting an extra 20% compensation which they are not paying tax upon: and they should.
For each £10,000 of wages public sector workers are getting an extra £2,000 untaxed compensation. Tax (income and the two NIs) would be about 40% of that extra £2,000, £800, or 8% of the original £10,000 in cash wages.
Thus all public sector workers should have to pay an extra 8% of their wages in tax.
Total public sector wages are in the range of £160 billion a year (that might be a little out of date) and this will raise some £13 billion a year.
As I said, a tax that we can all support. The TUC, unions and Labour Party will, of course, quite naturally support taxing those who currently are not paying their full whack on the compensation they get through working and the rest of us, well, we can just all gurgle in pleasure as we see that petard being hoisted high. Oh, and of course, as we see the tax burden on us reduced as the public sector workers pay what they should have been paying all along. But we’ll be nice, eh? No asking for the back taxes from the last 20 years.