Fully Funded?

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In the words of the Princess Bride, I do not think those words mean what you think they mean, Mr Cameron.

So the Tories annunced their employment tax plans today, basically saying that firms won’t have to pay National Insurance for a year when they hire new workers. they claim this is “fully funded”

Here’s a quick question for journalists. if unscrupulous employer David Cameron allows underperforming employee George Osborne’s contract to expire, and subsequently hires unemployed Ken Clarke to replace him, won’tl he get a tax cut?

If he does, then this policy is not fully funded.

This is an important question because while the Tory policy document says no firm that has made “redundancies”, can apply for this tax break for three whole months, a large number of the British workforce are on short term contracts, that can just expire.

Reading BERR’s guidance notes, letting such workers go and replacing them would seem to be a dismissal, not a redundancy.

Second, the Tory policy document says the NI holiday would last a year for a new employee. So what would stop an employer letting their current contracted employee go at the end of their annual contract, hiring a new one to replace them in order to get lower NI, and then rinse and repeating in a years time?

The effect of any moves like this would be to give employers an NI holiday without any relief to the exchequer.

Finally, this policy would have one unintended consequence. What employer would take on an employee who had been unemployed for less than three months when they’d save 11% of their wage bill by waiting a few weeks?

As a result I imagine the length of time the short term unemployed spend on the dole reaching 3 moths with this scheme, with an effect on the cost on enemployment that would be substantial.

Now this isn’t to say the scheme is in and of itself a terrible idea. It’s basically a rip of of an Obama plan, which the Obama campaign put at a cost of $60 billion, (tha figure includes other programmes too).

The Obama plan is also based on a Jimmy Carter US Federal tax credit (see here for details of the Carter proposal, which seems to have cost around $13,500 a job).

SAo it’s not nescescarily a terrible idea, It’s just definitely not fully funded.

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