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On Monday there was what The Independent claimed as a scoop. The Labour Party plan to increase National Insurance contributions – for both employers and employees – to fund increased spending on the NHS.

Is it true?

A Labour spokesman told the Daily Mail that the story was “complete nonsense.”

However attempts to get a straight answer from Ed Miliband in the House of Commons yesterday proved unproductive.

The first valiant effort came from Dr Thérèse Coffey, the Conservative MP for Suffolk Coastal:

The right hon. Gentleman is absolutely right that we need to continue to create more and more jobs, but one of the things we have to make sure of is this: we have just reduced national insurance by £2,000 for employers, so will he now rule out any increase in employers’ or employees’ national insurance?

Ed Miliband responded:

I believe we actually called for that proposal first, but I say to the hon. Lady that there are two schools of thought on the recent experience of the election, one of which says that this country is fine and the economy is fixed. I do not believe that that is the message of the recent elections.

Then Mark Pritchard (The Wrekin) (Con) had a go:

I agree with the right hon. Gentleman that politics cannot be the same. In that spirit, will he be clear and transparent and rule out once and for all—should he enter Downing street, God forbid—any new tax on employment through increases in either employers’ or employees’ national insurance contributions?7

No luck. Mr Miliband said:

We want to see taxes on employment fall—that is why we have proposed a 10p tax rate to actually make work pay for people.

Then Julian Smith, the Conservative MP for Skipton and Ripon, had a try:

Does the right hon. Gentleman rule out a jobs tax on workers in my constituency should he get into power?

By now Mr Miliband was finding the question most tiresome:

Here we have it: the country wants answers to deeply serious questions, and what do the Government do? They get every Tory Back Bencher to read out a planted Whip’s question. I have to say it: no wonder the public hate politics, given the way Government Members behave.

It is difficult to be terribly sympathetic to Mr Miliband – as he could have scuppered the operation by answering the question.

In any event such a proposal would be a mistake.

National Insurance is a tax on jobs. The public have long since spotted that it is a tax and it would make for a simpler, and more honest, tax system for it to be merged with Income Tax – as the TaxPayers Alliance have recently proposed.

Just as the term “National Insurance” is misleading so is the suggestion that an increase in it would be going into some separate pot for some ring fenced purpose. It all goes into the general soup.

As the General Secretary of the Fabian Society, Andrew Harrop, wrote on Labour List:

A promise of hypothecated tax increases to pay for new NHS spending is a sham that would simply spell more cuts elsewhere.

National Insurance contributions are rather complicated with different thresholds and rates.  Apparently the idea is that Labour would raise an extra £7 billion by putting up both the employees’ rate from 12 per cent to 13 per cent and the employers’ rate from  13.8 per cent to 14.8 per cent.

This sounds like an estimate based on static rather than dynamic modelling. What calculation has been made for the jobs that would be destroyed? What about those whose contributions go down from 12 per cent to nil as they are on the dole? Or the firms whose contributions go down from 13.8 per cent to nil as they have been driven out of business?

Increasing the tax on jobs would erode the process of job creation and thus the progress made under this Government of a reduction in unemployment.

Then there is also the wider damage to the economy that higher tax has on economic growth. As Churchill said:

“For a nation to try to tax itself into prosperity is like a man standing in a bucket trying to lift himself up by the handle.”

The French experience has reminded us of the truth of this.

A final point is that Mr Miliband quite rightly states that despite a growing economy many people are still struggling financially. They are still embroiled in a “cost of living crisis” after years of falling incomes. How does he imagine that taking more money from them in tax will help to ease that crisis.

18 comments for: Will Labour increase National Insurance contributions?

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