Thursday, 8 April 2010

Election 2010: Local Impact of Labour's Tax Hike

Yesterday, the British Chamber of Commerce's latest economic survey of 5,500 businesses showed first quarter economic growth down at 0.2% (after 0.4% in the final quarter of 2009). The recovery has gone from limping to stumbling.

That is why the debate on Labour's National Insurance tax hike - on both employers and employees - is so important. Labour's plan to cut the deficit focuses on increasing taxes, whilst the Conservatives - like most households and businesses - know its time for the state to rein in excessive spending, and avoid raising taxes on jobs. We draw on plans from Gordon Brown's former adviser, Sir Peter Gershon, who identified £12 billion worth of cuts in waste. It's a bit rich of Labour to call for more detail - who canned the Comprehensive Public Sector Spending Review due last summer?

For the historians and policy wonks out there, history is on the Conservatives' side. Two studies in 2009 surveyed the post-war record of both approaches to economic recovery and debt reduction around the world. Harvard economists - Alesina and Ardagna - looked at around 100 examples since 1970, concluding in favour of belt-tightening and tax cuts to reduce debt and spark recovery (report here). London think-tank, Policy Exchange, concluded from similar evidence that - when it comes to paying off government debts - we should look at an 80/20 ratio of spending cuts to tax rises (report here).

Wave after wave of business leaders, from Bestway Cash & Carry to Marks and Sparks, have told Gordon Brown that these historic lessons are economic reality for Britain today - that putting up National Insurance threatens economic recovery. Labour grumpily accused the Conservatives of 'deceiving' business - a measure of how detached from reality they have become.

Enough of the big picture. What about the local impact? Based on figures from the Office of National Statistics, the Conservative plan to reverse the hike on National Insurance would leave 16,800 (or 40%) of people in the Esher and Walton constituency better off. That is below the national average (of 70% better off under our plans), because average salaries are higher here and our plans focus on salaries up to £45,400. Still, it exposes the widespread damage that a fourth Labour term would wreak.

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