The Conservatives have been winning the argument about National Insurance Contributions (NICs) – but not because they have got the arithmetic right. The Tory numbers are as flaky as Labour claims. David Cameron has thus far come out on top because: 1. Lots of business chiefs say he is right; 2. His is the simpler case to put across; and 3; The media is inclined to give him the benefit of the doubt.
As far as the numbers go there are two areas of controversy.
The first concerns whether an increase in NICs is more likely than other tax rises (an increase, say, in VAT) to cost people their jobs. I heard Stuart Rose of Marks & Spencer pontificating on this on Radio 4. My instant reaction was that Sir Stuart would do better to stick to retailing. The real answer is we don’t know.
The evidence, in so far as there is some, is contested. Some experts say employers pass on the cost of higher NICs by cutting their workforces; others that they compensate by giving their employees smaller wage increases. The truth is probably somewhere between the two. Likewise, companies are likely to respond to a fall in consumer spending prompted by a rise in VAT with a mixture of measures including wage and employment adjustments. Take your pick, or better still read an excellent exposition by my colleague Chris Giles.
The second bone of contention is whether the Conservatives could pay for their proposed cut in NICs (relative to Labour plans) with additional “savings” from government waste. The answer to that is no – unless they want to close down Whitehall for the rest of the present financial year. Gerry Grimstone, a Treasury adviser, has nailed the argument in the FT.
As far as the campaign goes, though, the politics is trumping the economics. Mr Cameron’s charge of a “jobs tax” has a nice ring to it; all those business leaders can’t be wrong, can they? (The same was once said about bankers); and anyway the media thinks the tide is with the Tories.
In so far as one can call the opening days of the campaign, it has gone Mr Cameron’s way. Whether the NICs furore (or the campaign generally) is actually changing anyone’s mind is a question I will come back to.
Jim Pickard
Kiran Stacey