Tory MPs call on Jeremy Hunt to dismiss proposals by a Treasury advisor to tax businesses that give out pay rises of more than 3% in a bid to curb inflation
- MPs tell Chancellor that employers who give decent pay shouldn’t be penalised
- Idea suggested by Sushil Wadhwani to tax pay rises over 3% at 100 per cent
A Treasury adviser has proposed taxing businesses that award pay rises over 3 per cent as a way to curb inflation.
Sushil Wadhwani, who sits on Chancellor Jeremy Hunt’s Economic Advisory Council, suggested that all annual company pay rises above that level should be taxed at 100 per cent.
It means, for example, that employers who give an extra £1,000 above the 3 per cent to workers would pay £1,000 more in tax for each of them.
Writing in the Financial Times ‘in a personal capacity’, Mr Wadhwani said the Government could ‘consider a measure that would directly operate to bring inflation expectations down without necessitating a rise in unemployment’. But last night Tory MPs urged the Chancellor to dismiss the idea.
Former Welsh Secretary David Jones said: ‘Those who do a decent day’s work should get a decent day’s pay. And employers who do that should not be penalised.
‘If we want to encourage productivity, quasi-Socialist policies such as this should be immediately rejected by the Chancellor.’ Mr Jones added: ‘What would be a really good idea is employing officials in HM Treasury who actually believe in the market economy.’
Bank ‘too focussed on net zero
The Bank of England has been less able to tackle inflation because of the time and effort it has dedicated to net zero, according to former governor Mervyn King.
Lord King, pictured, who led the Bank from 2003 to 2013, said it made ‘absolutely no sense’ to add net zero to the organisation’s responsibilities and that this was diverting attention from its core work.
He added: ‘What you’ve now got is an awful lot of people at the top who are not doing monetary policy. That, I think, is bound to weaken the institution’s ability to ensure that the brightest and best focus on the most important task, which is achieving price stability.’
Mr Wadhwani wrote that Ministers could ‘implement a tax whereby each firm who grants a wage increase above three per cent would be required to pay a 100 per cent tax on the excess’.
He continued: ‘If a firm awards a wage increase of 5 per cent, it would cost it 7 per cent as it would have to pay the extra tax equivalent to the difference between the wage increase granted and the baseline reference level. Such an announcement is highly likely to bring inflation expectations down.’
Last month official figures showed annual wage growth outstripping inflation, with average pay, including bonuses, rising by 8.2 per cent.
Mr Wadhwani, a former member of the Bank of England’s monetary policy committee added: ‘The time has come to help the BoE more in its pursuit of low and stable inflation. A tax on inflation alongside the use of the interest rate tool should improve their chances of success.’
Labour estimates that the proposed tax could cost businesses as much as £53 billion a year if wages keep rising at the present rate.
Shadow Chief Secretary to the Treasury Darren Jones said: ‘Under the Conservatives we have the highest tax burden in 70 years, with 24 Tory tax rises since 2010.
‘Now Jeremy Hunt’s closest advisers are plotting a huge tax raid on British businesses that will leave them even worse off.’
A spokesman for the Treasury said: ‘The Economic Advisory Council provides independent, expert, confidential advice and does not hold any policy or decision- making powers.’
Meanwhile, the Bank of England has been less able to tackle inflation because of the time and effort it has dedicated to net zero, according to former governor Mervyn King.
Lord King, who led the Bank from 2003 to 2013, said that it made ‘absolutely no sense’ to add net zero to the organisation’s responsibilities.
He said this was diverting attention from the Bank’s core work of ‘achieving price stability’.