In an attempt to put ‘clear blue water’ between the parties, George Osborne, the Shadow Chancellor, is expected to announce today that his party will reduce Labour’s National Insurance Contribution (NIC) rise scheduled for 2011.
The move, he argues, will take seven out of ten workers out of the reach of the tax rise, but higher earners will still be hit.
The cost of this is to be met by public spending cuts, not by raising taxes in other areas such as VAT.
Labour and the Liberal Democrats will of course point out that if this requires cuts in spending it will require cuts in services. They will also make the most of the Tories lack of clarity on where exactly any spending cut axe would fall.
There is also the matter of not only putting distance between themselves and Labour, they also risk putting a wedge between themselves and the LibDems. This may give them problems in the event of a hung parliament, something many pundits believe may well happen.
But this will be a more business friendly policy. The CBI had previously condemned the NI rise as a tax on jobs. The British Chamber of Commerce and Chartered Institute of Personnel and Development also said that the rise would endanger the economic recovery.
NICs are due to rise from 11% to 12% for employees and from 12.8% to 13.8% next year. This year NICs will raise some £97 billion for the public purse. The rise would see a further gain of £10 billion, which the Conservatives hope to limit to £5 billion with this proposal.
The Tories have been trying to find a way of cutting this tax rise but have not been able to identify a way of funding it until now. Just recently Ken Clarke said that it would not be possible to do so before the election.
The NIC increase is central to Labour’s plans to reduce the deficit. They argue that it has to be done and that without it cuts that affect the economy would have to be made.
That the difference between the parties comes down to whether or not seven out of ten workers and businesses pay an extra 1% in NICs from next year should worry us all.