The Anonymous Widower

Child Care, Gardening, Carers and Unemployment

About twenty years ago I met a policy strategist at the Department of Employment.  He wasn’t your typical civil servant, as he had been recruited at about forty into government service, after a successful career in academia and industry.

In those days we were just as worried about many things that we still are today.

One proposal he had was that if you employ someone on a fully legal basis, where all tax and National Insurance is paid, then you can set all or a proportion of those costs against your tax.

He gave some examples, where it might apply.

1. Many people employ a nanny or mother’s help, to help in the home with their children. At present, he said, it’s often cash in hand and a room or perhaps the help is employed in the family’s small business as a secretary, so that the costs are tax deductible.
2. You also have the case of people, who employ a gardener to do the heavy work as they get old.  Usually, it’s cash-in-hand, for a few hours, but perhaps, they’d really like to employ someone full time and even share the person with the neighbours or other people locally.

So we have system, where these sort of people are employed in one or two ways.

1. Cash-in-hand, which often gives the worker  all sorts of problems and will mean they have a reduced pension when they retire.
2. The fake job, where they are employed and set against tax in a business controlled by the employer.

Both methods mean that less tax is collected and fewer jobs are created.  It also means that an au-pair from some strange place is much cheaper than a real job employing a local person.

The civil servant believed that if you could set employment costs for an employee, against personal tax, it would have substantial benefits. Obviously, the job would have to be real and tax, National Insurance and minimum wage regulations were all observed.

If we take the mother’s help/gardener/carer case, it probably would create a lot of jobs, especially if sharing was allowed. The tax system might become a little bit more complicated, but an awful lot of people earning a good salary, might decide to employ someone full-time rather than rely on trying to fit caring for an ageing parent around a full-time job.

A lot of these jobs might be for people, who are in groups, that find getting worthwhile jobs difficult. We have a lot of young people who don’t have jobs.  Surely, there are people who might like to employ them personally. As an example, since I have moved here, I might have benefitted by having someone help me with sorting out this house.  There would have to be a foolproof payment system to ensure tax was paid, but surely this could be put on-line.

In some ways, one of the biggest advantages would be in the creation of new businesses. Often people try to start their new business by doing both jobs at the same time. The outcome is often poor and the business fails, and often the personal relationships with it.

You could of course, setup a proper company, with employees from day one, but how many start-ups can sustain all of that expense.

Suppose you have a reasonably well-paid job and have this idea for a better widget or a new way of doing something. Often you need to research the business well before starting. So say perhaps for a year, you employed a bright graduate and asked them to check your feelings, do some design or programming or whatever. After that year, it might mean that the business was non-viable, and you would have to let the employee go.  But at least they’d had a hopefully interesting job for a year and you’d got the tax relief.  Or at least part of it. 

Imagine too, you are a self-employed decorator, accountant, software programmer or whatever.  If the system was made simple, you would think about getting help in busy periods or when you need it much earlier and more often.

You can go through lots of scenarios and do the sums.

The measures may well be fairly neutral to the tax system, but of course unemployment benefit would drop. I suspect, it would also help a lot of people to have better lives and pensions.

The real loser would be the black economy.

One of the reasons the system was never even considered was that the Treasury’s model of the economy doesn’t include the black one. Incidentally, at the time at least one of the major banks model did.  They got the economy right and the Treasury didn’t.

With all the arguments about the temporary fifty per cent tax rate, child care costs, caring provision for the elderly and unemployment, it appears to me that the current personal financial system has failed.

Perhaps we should think the unthinkable.

September 8, 2011 Posted by AnonW | News | Tax, Unemployment | 1 Comment