Magazine |
National Insurance becomes major election issue

The Conservatives’ pledge not to proceed with Labour’s planned National Insurance hike is becoming a major electoral issue, as parties clash over taxation and tackling the public sector deficit.

The proposal provoked one of the few angry clashes in a subdued Meet the Chancellors live television debate, held on 29th March on Channel Four. Labour’s Chancellor Alistair Darling rounded on his Conservative counterpart George Osborne, saying: ‘You want to reduce National Insurance Contributions ... the first thing you announce is a spending spree you can’t finance.’

And Vince Cable, for the Liberal Democrats, claimed the cut would be financed by the same ‘efficiency’ savings that the Conservatives earlier had said were unrealisable.

The Tories promised not to implement Labour’s announced 1% rise in the employee and employer’s rate from April 2011. It could cost around £5.6bn in lost revenue, at a time when the public sector deficit is a record-breaking £167bn. But the Conservatives received support from employers’ groups, who said it was a tax on jobs.

John Philpott, chief economic adviser at the Chartered Institute of Personnel & Development, said: ‘[Mr] Osborne's proposal to cut much of the Government's hike in NICs shows that he has wisely listened to British business. The move will be good for jobs.’

But he added: ‘However, the shadow chancellor is perhaps less wise in proposing to cut £6bn from Labour's spending plans in 2010/11 … with the economy recovery still very weak and potentially fragile, Mr Osborne is in this respect clearly taking a gamble on growth and employment.’

Richard Lambert, director-general of the CBI, said: ‘The Conservatives’ plan is welcome. NICs are a tax on jobs and increasing them is a bad idea when we want to promote job creation.’