Unnamed “experts” are wheeled out in the Conservative manifesto to bolster the Tories’ fight against the planned rise in national insurance contributions. The manifesto warns:
“This jobs tax, which will hit small businesses especially hard, will kill off the recovery. Experts predict it will cost 57,000 jobs in small and medium-sized businesses alone”.
But there is another expert the party has, for some reason, decided not to quote in its manifesto—Rupert Harrison, the Conservatives’ chief economic adviser. Yesterday, the party referred enquirers on national insurance to a peer-reviewed article he co-authored in the esteemed Economic Journal in 2007.
Perhaps the party did not expect journalists to bother to read or understand the equations. That article provides statistical estimates of the effect of taxes—such as national insurance—on the unemployment rate. If you plug in the proposed tax systems from Labour and the Conservatives to the published equation, the result from the Conservatives’ own expert is not that Labour’s national insurance proposal will cost 57,000 jobs in small companies alone. Far from it. It is that in the whole economy, unemployment will rise by less than one tenth of a percentage point – the equivalent of 23,000 jobs.
That figure is less than the likely reduction in public sector jobs the Conservatives expect from controls on public sector recruitment in the first year necessary to pay for the national insurance change.
Is Mr Harrison’s work a one-off, he alone believing the jobs effect of national insurance is small? No. Academic work in 2005, co-authored by a renowned expert in the field, professor Stephen Nickell of Oxford University and a former member of the Monetary Policy Committee, gives an extremely similar result. A “10 percentage point increase in the total employment tax rate lead[s] to around a 1 percentage point rise in unemployment in the long run,” Prof. Nickell’s research concludes. Compared with the Tories’ plans, Labour’s national insurance increase represents a change in the total employment tax rate of just 0.7 percentage points, implying a rise in unemployment of 0.07 percentage points or roughly 22,000 jobs.
