Conservative Party National Insurance proposals

by Razi Rahman, Director, Public Affairs

The Shadow Chancellor of the Exchequer, George Osborne MP, today outlined Conservative Party plans to limit the Labour Government’s National Insurance increase due to come into effect in 2011/12. Mr Osborne claimed that as a result of changes being proposed to NI thresholds, employees earning between £7,100 and £45,400 would be up to £150 a year better off. The NI increase would, however, still impact anyone earning more than £45,400.

Characterising the Government’s NI increase as a “tax on jobs”, the Shadow Chancellor said that as a result of proposed changes to employers’ contribution threshold, “the tax on every single job with a salary of more than £5,700 will be reduced for employers by up to £150”.

The Shadow Chancellor said that the cost of this would be funded through efficiency savings. He said that Sir Peter Gershon and Dr Martin Read had identified a total sum of £12 billion which could be saved from the government budget in 2010. The cost of raising the NI threshold – just under £6 billion would come from savings outside the Departments of Health, International Development and Defence. Savings identified in Health and International Development would be reinvested – fulfilling the Conservative commitment to protect those budgets. The politically sensitive defence budget would also remain unaltered.

Conservative election strategists will hope that this announcement is effective pocket book politics, which will be welcomed by the 70 per cent of voters whom George Osborne today claimed would be better off. They also will hope to receive the endorsement of those organisations, such as the CBI, which criticised the National Insurance increase when it was announced by Alistair Darling last year.

A key communication challenge for the Conservatives is that National Insurance, its thresholds and rates, is not widely understood. It is why governments have traditionally focussed tax cutting efforts on income tax and have seen National Insurance increases as less politically damaging. Expect to see Conservative spokespeople focus on the headline message – that 70% of people will be up to £150 better off, rather than getting drawn on the detail.

Yet with such announcements, it is the detail rather than the headline which determines whether such plans survive scrutiny. The Conservatives confirmed they would be publishing the advice from Gershon and Read, and in the days to come, analysts will focus on whether it is really possible to find these efficiency savings, which are in addition to those announced by Mr Darling last Wednesday. There will be questions about whether there has been “double counting” of savings already pencilled in by Labour and where the axe will fall, department by department.

A further issue is whether today’s announcement blunts the Conservatives’ own message that they would start cutting the deficit now. This was certainly the argument put forward by the Chief Secretary to the Treasury, Liam Byrne MP, who within minutes of Mr Osborne sitting down issued as statement claiming that the Tories had “entirely lost sight of cutting the deficit”.

By making the announcement today, the Conservatives aimed to get onto the front foot and dominate the news agenda on a day in which the economy takes centre stage. Later tonight, George Osborne will join Alistair Darling and Vince Cable on Channel Four News for a televised debate. It will be interesting to see whether today’s announcement helps him to frame the terms of the debate or instead puts the Conservative plans, rather than the Government’s performance, under greatest scrutiny.