A Regional Payroll Tax

Abstract

In recent years, considerable emphasis has been given to the importance of the labour market in the management of the U.K. economy. In particular, discussion has emphasised the existence of a misallocation of labour resources within and between regions, firms and different sectors of the economy.¹ The problem of regional development is one aspect of this interest in the U.K. labour market. In effect, through fiscal, regional and manpower policies, the Government is attempting to achieve a leftward shift in the Phillips curve. This public policy emphasis on the labour market and the criticism accompanying the introduction of the Selective Employment Tax (S.E.T.) and the Regional Employment Premium (R.E.P.) resulted in some writers advocating the introduction of a payroll tax.² It is in the context of this debate about taxes and subsidies on the factor of production, labour, that we present a simple proposal for a regional payroll tax/subsidy. The S.E.T. and R.E.P. may be termed quasi-poll taxes, since they are levied (or distributed) per man employed, but are not true poll taxes in that they tax the factor labour, while the true poll tax, with its theoretical advantages of leaving undisturbed the allocation of resources, is levied on the individual qua member of society.