The election spat over national insurance – an income and payroll tax – is becoming more absurd by the day. Even though I argued that the business case for avoiding the national insurance rise was so weak it had to be an April fool, Gordon Brown has done himself no favours by also suggesting British business leaders are idiots. In the usual election claim and counter-claim, there are three important principles I keep close to heart.
1. The person who writes a tax cheque is rarely the person who ultimately pays the tax. The Financial Times pays the vast majority of my income tax by withholding it from my salary, but income tax is levied on me, not the FT. The same is true for national insurance, whether it is the bit formally levied on the FT on my behalf or the bit formally levied on me. As economists would say: “the formal incidence of a tax is not the same as its effective incidence”. Here is one such economist, Ray Barrell from the National Institute for Economic and Social Research, writing a note to one of my colleagues.
The suggestion that a rise in NICs is a tax on jobs is not economically coherent, although it might look plausible. The incidence of a tax on wages does not influence its effects. Both are a direct tax on wages, but are collected differently, and have limited or no direct effects on employment. … It is the sort of thing we do in first year undergraduate courses.
For more information on tax incidence and why national insurance cannot be described as a tax on jobs Read more
Today’s industrial production figures for February are strong, highlighting the receding chance of a double-dip recession being announced for the first quarter just before the 6 May election. Even less likely is the chance the Monetary Policy Committee will do anything at their monthly meeting today, thrusting themselves into the heart of the election debate.
And to stop the MPC’s deliberations in May having an effect on the election, the Bank of England has already confirmed it will postpone the start of deliberations for the scheduled 6 May MPC meeting for 48 hours with the outcome reported on Monday 10 May. The date of the May inflation report remains unaltered. Read more
The election campaign has kicked off with another fight about jobs and the economy. Forgive my naivety, but the distortions and liberties taken with economics by both sides over taxes and jobs have already been breathtaking.
David Cameron, the Conservative leader, launched his campaign promising to stop “the job tax which would wreck our economy”, which is even more starkly illustrated in the latest Tory poster campaign. Pity that poor economic green shoot.
All of this hyperbole is nonsense. But showing no greater regard for economics, Gordon Brown, still prime minister until 6 May at least, warned: “Unemployment is falling but a party that does not believe in government action would put jobs at risk”. I have discussed this canard many times in this blog and will not go through it again today.
Instead, let’s just focus on the economics behind jobs and taxation briefly. The subject is deep, not fully settled and complex. But there are three things on which most economists would broadly agree. The fact Britain’s politicians ignore them does them no credit.
First, Read more
As far as the economy and the election is concerned, I have been struck for some time by the similarities with the 1992 election. After finding some contemporary analysis of the 1992 election, on which I worked as a cub researcher, my memory has been playing tricks on me. There are even more similarities than I remembered:
After a rather inspiring hour of TV debate, here was my take. Who won? No-score draw, I reckon. Will it change anything? No. Was it worth it? Not really. For another take go to the Westminster blog, which is plumping for Vince Cable as the victor.
So boxed-in are the three candidates for chancellor by the budgetary arithmetic that there was broad agreement on the main tasks facing the next occupant of Number 11.
All agree that cutting the budget deficit is a top priority and it will require a tougher spending settlement than those under Mrs Thatcher in the 1980s. None wanted to tell the audience in the studio or at home what deep cuts they had in mind although they each had some small examples to give the impression they were tackling the problem.
They all accepted that pensions for public sector workers should be trimmed and those employed by the state could not have a guarantee of their jobs. They all agreed taxes would rise and did not rule out changing income tax or value added tax. A brain drain of the richest was an exaggerated threat, they chorused, suggesting their priorities lay elsewhere. The government should address inequalities and bankers’ bonuses were outrageous. Banks should lend more and this was one the necessary ingredients for securing growth in the economy.
That much was agreed, so the disagreements were relatively minor.
Alistair Darling and Vince Cable rounded on George Osborne for Read more
Chris will be posting on the economic aspects of the programme. Also, please note that our Westminster Blog colleagues are doing a live blog.
Forget the waffle about cutting £12bn of waste out of government from the Conservatives and £11bn of efficiencies from Labour. We now have a firm policy from the Tories: to cut £6bn (or 2.8 per cent) from government departments’ 2010-11 budgets. The savings will be used to fund reductions in national insurance contributions for employees and employers. What can we say about this policy:
- Deep, clear and immediate budget cuts. The £12bn headline reduction in “waste” is, in reality, a simple cut of £6bn in departmental expenditure limits for 2010-11
As feared, the coming election is already throwing up dodgy political claims about the economy well before it has already started. In a speech in the City this morning, Gordon Brown seemed to announce a new policy to freeze the pay of senior public sector workers, saving £3bn a year. This would be a worthwhile amount, showing Labour was serious about reducing the budget deficit if the policy and figure was true and fair. It was not. The prime minister said:
“Last week I said that the parliamentary and ministerial salaries of all paid government ministers would be frozen. We must take an equally disciplined approach to pay and benefits right across the public sector.
So today I can announce that after the reports of the review bodies we will also freeze the pay of senior staff in the civil service, senior staff in the military, the judiciary, senior managers in the health service and the pay of consultants, GPs and dentists.
These measures, along with the new controls on pay which I announced in December, will save money immediately and by 2013-14 save more than £3 billion.”
Silly me. I read the speech without wearing my deeply cynical hat, as did the BBC, the FT and Reuters among others. Read more
Surprise, surprise. George Osborne’s, favourite statistic is – how shall I put it politely – nonsense.
I fear pointing out dodgy claims and counter-claims will become a regular feature of the blog during the election so, as a precaution, I’ve added a number to the title.
In his Mais lecture last week and appearing today, the shadow chancellor claimed:
“We are coming to the end of the first full Parliament since the Second World War when national income per person has actually declined.”
I was initially quite impressed by the statistic until I checked it out. Don’t believe it. It is not true. In the 1979 to 1983 Parliament, real national income per head also fell.
Mr Osborne also phrases the question a little differently. Last week he said:
“When people ask the famous question – “are you better off than you were five years ago?” – this will be the first election in modern British history when the answer from the government must be ‘no’.”
This is more difficult since we do not yet have the full statistics yet. Obviously, people’s circumstances differ, but for most people, the most accurate answer to the question is Read more