Electioneering, or just plain common sense? The Tories said today that they’ll reverse most of the Government’s planned increase in National Insurance contributions if they win the Election – claiming that seven out of ten working people will be better off as a result. It’s a move clearly designed to bolster the standing of Shadow Chancellor George Osborne, on the day of his televised debate with Alistair Darling and Vince Cable – and it’s not at all clear how the Tories are going to pay for it. On the other hand, it’s hard to argue with the basic contention: that it’s a daft idea to be making it more expensive for companies to employ people when the economy’s in such a feeble state…
The Government’s current plan is to increase NI from 11% to 12%, and employers’ NI from 12.8% to 13.8%, as of April 2011. Osborne described this today as ‘the economics of the mad house’ and insisted that Labour would ‘kill the recovery with their tax on jobs.’ So the Tory plan is to reverse both hikes – at least partly. The threshold at which employers start paying NICs will be increased by £21 a week, meaning it will be £150 cheaper for companies to employ people under the Tories. He’s also going to cut employees’ NI, which may be even more voter-friendly: anyone earning between £7,100 and £45,400 will apparently be better off (that’s 70% of the working population), while nobody will actually lose out.
Naturally the Government’s reaction has been to ask how the Tories intend to pay for this; after all, the NI hike was scheduled to knock about £10bn off the deficit. Osborne claims that his advisers have apparently identified £12bn of Whitehall efficiency savings that can be made this financial year, without impacting front-line services; even if half of that gets re-invested, that would save £6bn. Apparently this will principally involve chopping IT projects, renegotiating supplier contracts, leaving vacancies unfilled, clamping down on discretionary spending and cutting property costs. Now, they’re being suspiciously vague about exactly what will get the chop, arguing that they can’t tell from Opposition. But Osborne insists the report’s authors – Sir Peter Gershon and ex-Logica boss Dr Martin Read – know their onions.
This won’t deflect the accusations of fiscal irresponsibility from Labour (a rather odd role-reversal, it seems to us). But the fact remains that at this stage of the recovery, with the job market still wobbling, the Government surely needs to be making it easier, not harder, for firms to hire people. The NI hike would have precisely the opposite effect, potentially undermining growth – which is why business groups have been united in opposition to it. Reversing self-defeating tax hikes is always a good idea, whether it’s a vote-winner or not.
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