First published in the Telegraph on 8 April 2010
National Insurance turns 100 next year, an anniversary which looks likely to be marked by about as much controversy as its birth. Back in 1911, the fuss surrounded the creation of the early welfare state (which NI was set up to fund). This time around, the row is distinctly less inspiring and decidedly more ridiculous, focusing as it does on a difference over the parties’ plans for the tax.
Well, I say ridiculous. Whether you agree depends on how close you are to Westminster. If you’re looking at the whole thing from afar, what becomes apparent is that the party leaders are quite happy to drone on about National Insurance because it disguises the fact that there is so little to separate them on their detailed, professed economic plans. If you take politics awfully seriously, the imbroglio really matters because it underlines the key differences between the parties – that one is in favour of cutting taxes, the other is in favour of using money not to cut taxes but raise investment spending. My inclination, as is probably clear from my column this morning,is to side with the former.
However, the episode has underlined some important shifts in the election battle. The first is that, strikingly, businesses and chief executives have not been afraid to get involved. Few CEOs would support an increase in NI, so we shouldn’t be surprised that they are in favour of the Tory plan (which actually involves merely raising it less quickly than Labour – except for the lowest paid workers). However, their willingness to stand up and be counted might well be a sign that they are warming to the Tories (or that, more likely, they know the way the wind is blowing).
The second is that both Labour and the Tories clearly now tacitly agree that going on about the deficit is doing neither of them any favours. It suits them both to talk about measures (NI cuts, investment increases) rather than the looming national debt threat. After all, everyone has worked out that life post-election will not be that fun – but this is an election: why campaign on that basis? I would prefer for the politicians to be honest with people, but I realise, wearily, that this might be asking too much.
The third is that both parties are basing their plans on rather suspect “effciency saving” packages. They are both pinning their measures (in the Tories’ case doubly-so) on being able to cut Whitehall waste. Now, when the Treasury were launching yet another efficiency package late last year I remember a Tory adviser archly sidling up to me and pointing me towards an IMF paper which declared that efficiency gains – alongside fiscal reponsibility laws and packages – were two sure-fire signs of a government close to losing its credibility.
The fourth is that, depressingly, this election has already become bogged down in mind-numbing levels of detail. For example, one question, which no-one seems to be able to agree on, is whether raising national insurance would trigger rises in unemployment. David Cameron claims it will; Liam Byrne from the Treasury was trying to persaude people on the BBC the other day that it could actually reduce unemployment.
The confusion is not helped by the fact that, in the first place, most people are forgetting the fact that National Insurance is in fact two quite separate taxes – one on employees (which is essentially just an extension of income tax) and another on employers (which is levied on businesses depending on how many workers they have and how much they pay them). Raising the employees tax ought not to increase unemployment, but may reduce consumer spending, since it would merely be passed onto the worker.
Whether raising the employers’ NI would increase unemployment is unclear. Most economists would conclude that it, too, could be passed onto workers in the form of lower wages. And the experience of the economic crisis has been that companies and workers are accustomed to wage cuts. So a rise in NI is just as likely to cut wages as unemployment.
In fact, in the Tories’ own briefing note they say that cutting National Insurance would bring in higher wages – which seems to imply that were it to go the other way, the consequence would be lower wages, rather than higher unemployment.
Anyway, the plain truth is that there are examples of NI rises both increasing and decreasing unemployment – don’t take it from me, take it from John Philpott, economist at the Chartered Institute of Personnel and Development (and one of the country’s leading employment economists):
“I don’t think National Insurance is a tax on jobs. My view on is that the tax actually falls on employees rather than employers, so changing it doesn’t have an effect on employment over the long term. However, while that is certainly true with the economy running at trend growth, it might have a short-term impact at a time like now, with the economy still recovering from the crisis.”
He would prefer a VAT increase, although this would also threaten to cut jobs, since people would spend less and so more businesses would struggle.
Anyway, you get the idea. Somehow, this election has already descended into economics-land where there are no clear answers. And that is coming from an economics journalist. This is very depressing, and to me underlines the fact that there is still so little tangible difference between the political parties, that they have failed to understand that the days of micro-fiddling with the economy are over and that now is the time for bolder action to rebuild Britain’s reputation, and, finally, that they still think Britons can be bored into voting for them. Le plus ca change…