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ALEX BRUMMER: Spiking national insurance hike is right

ALEX BRUMMER: Far from causing more inflation, removing the national insurance surcharge could lower the price level – increasing the increase is right







Spike the hike: Conservative leadership favorite Liz Truss

Spike the hike: Conservative leadership favorite Liz Truss

Long before Tory leaders’ favorite Liz Truss became a fan of “peaking national insurance increases,” it was clear that there were all sorts of problems with this hastily created tax.

The 1.25 percent NHS and social care levy for employers and employees was portrayed as a solution to the UK’s well-established social care problems.

Yet much of the money went into the health system’s black hole without any formal plan as to how the money will be spent.

Before then-chancellor Rishi Sunak adjusted the tax for lower-paid workers in his spring statement, in an effort to help the lower-paid, it was set to raise a hefty £16 billion in its first year.

Truss’ plan to rollback the surcharge has been criticized as inflationary due to its impact on borrowing.

That would be the case if the Bank of England chose to accommodate the extra lending through quantitative easing (QE) – money printing.

But the Bank announced last week that it will begin rolling back QE from September by cutting its bond portfolio as it battles to pull back the punch bowl. Far from causing more inflation, removing the NIC surcharge could actually lower the price level. Since it is also levied from employers, it is yet another cost to businesses. At a time when input and prices are rising, it offers an excuse to pass on costs or even increase margins.

As the UK heads for a slowdown or even a recession, it is also a tax on jobs.

If it causes companies to stop hiring or leads to layoffs, it can contribute to higher unemployment. This will increase the pressure on public finances as benefits rise.

Truss will need to do more to help those on lower incomes as a further hike in the energy price cap is in sight in January. How easily critics forget that the government has already spent £37 billion on the problem, with a good £15 billion on those at the lower end of the income scale.

As much as you admire Gordon Brown’s passion for the cause of the needy, recalling the Commons at this stage would only add to air pollution.

Weak justice

The big accountancy firms have failed again. PwC showed insufficient rigor in challenging BT over how the £530 million fraud at the Italian arm of the group was being dealt with.

PwC has been criticized and has to pay a £2.5 million fine from the Financial Reporting Council.

Accountants face eternal conflicts in their work and all too often end up on the wrong side. Too often, audit partners are reluctant to harass directors, as executives are primarily responsible for paying fees, even if they are fictitiously approved at annual meetings.

Conflicts are even more ingrained when the auditors also provide advisory services. That’s why EY’s decision to divest its consulting business is significant, despite the shadow of fat cattery over the way it’s being done.

Another problem is that the punishment never really fits the crime. This could change if a government in limbo finally legislates for a new, more powerful Audit, Reporting and Governance Authority.

The gap between the fines imposed, the violation and the rewards that PwC partners receive is immense.

The loss at BT’s Italian arm was £530m – it wiped £8bn from BT’s share price at the time and chief executive Gavin Patterson eventually paid off with his job.

At PwC, earnings per partner for the year ending June 2022 were £920,000, a significant increase from the previous two years. In other words, the fine imposed by the FRC was less than three partner incomes. Regulatory trauma was simply a cost of doing bad business.

Reputational damage, yes. But because there is so little choice in audits for clients, it’s great work if you can get one.

Porsche power

Anyone who has delved into David de Jong’s book Nazi Billionaires: The Dark History Of Germany’s Wealthiest Dynasties could only feel contempt for the efforts of the controlling Porsche and Piech clan to take their control of both Volkswagen directly as a first public offering for it. to reinforce Porsche.

It is astonishing that families who have built their vast fortunes working with Hitler still exercise such authority over German business.