Page last updated at 15:40 GMT, Monday, 29 March 2010 16:40 UK

Conservatives to block National Insurance tax rise

George Osborne sets out out Conservative national insurance plans

The Tories have outlined proposals to block some of next year's planned National Insurance tax rises.

Shadow chancellor George Osborne said the plan would benefit anyone earning up to £45,400, although the new rate would apply to higher earners.

Describing Labour's tax rise as "the economics of the madhouse", he said seven out of 10 workers would be better off if the Tories won the election.

Gordon Brown called the Tory plan a "panic measure" ahead of the election.

The prime minister claimed it would "make it more difficult for us to retain the jobs and businesses and the industrial infrastructure that is necessary" for sustained economic recovery.

Mr Osborne said the Tories had identified £12bn of savings that could be made by government departments.

Some £6bn could be made in 2010-11, he said, to make a start in reducing government borrowing.

A further £6bn of savings would also be made in the Departments of Health and International Development - but would be re-invested in the frontline - and in the Ministry of Defence, although not until the next financial year.

Last week, Labour identified £11bn of savings, but said they aimed to implement them by 2012-13 and warned of the dangers of making cuts too soon.

Raising thresholds

But in the party's first major tax-cutting pledge in the run-up to the election expected on 6 May, the Conservatives said they would pay for the billions of pounds in lost NI by cancelling some projects in this financial year while pledging to reduce waste and cut the cost of procurement.

Mr Osborne said: "Labour will kill the recovery with their tax on jobs. We will cut Labour waste to stop it.

"No-one can seriously argue that tackling waste is somehow going to damage the economy."

Pays for a number of benefits including the state pension
Employees earning more than £5,720 a year must pay NI at a rate of 11%. Those on more than £43,888 a year pay 1% on anything above it.
Employers also make contributions for each employee and the self-employed pay largely according to their profits.
Under Labour, contributions for both employees and employers would increase by 1% from April 2011
Tories would scrap the rise for employees earning up to £35,000. Employers would also see no rise for staff earning £20,800 or less.

Mr Osborne said that under Tory moves the impact of the NI hike would be offset by raising thresholds for the levy.

For employees earning up to £35,000, the threshold would rise by £24 a week, while the upper earnings limit for contributions would increase by £29 a week.

He said that as a result, relative to Labour's plans, employees earning between £7,100 and £45,400 would save up to £150 a year.

Those earning more than £45,400 would see the proposed National Insurance increase come in as planned by Labour, the Tories added.

Under the Tories, employers would also not face an increase in contributions for staff earning up to £20,800.

To do this, the threshold at which employers start making contributions would rise by £21 a week, a move Mr Osborne said would save them up to £150 for every person they employ relative to Labour.

The Tories said the independent think tank, the Institute for Fiscal Studies, had put the cost of the move at £5.6bn in 2011-12. Over time, the IFS estimated that higher wages in response to the cut in employers' contributions would reduce the net cost to £4.3bn.

But the IFS also said that diverting efficiency savings into offsetting the NI hike "means that they are not available to contribute to the task of reducing government borrowing that the Conservatives have set such store by".

Chancellor Alistair Darling announced two 0.5% increases in National Insurance to take effect in April 2011 - one in his 2008 pre-Budget report and one in 2009.

They are central to the government's plans to cut the budget deficit.

'Control recruitment'

Shadow chief secretary to the Treasury Philip Hammond said the Tories had identified five immediate steps that could be taken to save £6bn in public sector costs in 2010-11:

  • Halt spending on major new IT projects and cancel any existing ones that were not worth completing
  • Negotiate significant cost reductions in the contracts held by government departments with major suppliers
  • Control recruitment by closing some back office and support roles when they become empty
  • Cut back on discretionary spending such as expenses, travel, consultancy and office consumables
  • Reduce public sector property costs by vacating space and cutting the running costs of buildings

Mr Osborne said "not a single penny" of the £6bn would "come from the frontline services that people depend on".

But the BBC's economics editor Stephanie Flanders said Mr Hammond's claim there was "no plan to cut jobs" with these savings was "disingenuous" because "if you don't fill vacancies... real people who would have been on the public sector payroll will not be".

Nick Robinson
This could trigger an intriguing political role reversal
Nick Robinson
BBC political editor

Mr Darling said Mr Osborne's credibility was "shot to bits" by the NI announcement.

"Last week, the Tories rubbished the £11bn I put forward. Today they are saying [that is] entirely credible.

"What is incredible are the claims that George Osborne is now making, promising to spend billions of pounds in the next Parliament when he hasn't got a single penny in the bank to do it."

For the Liberal Democrats, Vince Cable dismissed Mr Osborne's plans as "schoolboy economics".

"When you have a £70bn permanent hole in the government's finances you simply can't propose cutting tax revenue unless you spell out exactly how you are going to pay for it.

"The Tories say they are going to pay for a cut in National Insurance through 'efficiency savings', but haven't a first clue about how these savings are going to be realised."

'Important step'

The debate over NI is likely to feature when Mr Osborne, Mr Darling and Mr Cable go head-to-head on Monday night in a live debate on Channel 4.

In January, two business groups urged the government to scrap the rise in National Insurance, arguing it could endanger the economic recovery.

The British Chambers of Commerce (BCC) and the Chartered Institute of Personnel and Development (CIPD) said business would suffer from the extra financial burden which will hit any upturn in the labour market.

David Frost, director-general of the BCC, said Tory plans were "an important step in the right direction".

"However, the job is not yet done. Despite these positive proposals, companies up and down the country will still face higher costs to keep people in work from April of next year.

"To secure the recovery, we must completely eliminate this damaging tax on jobs."

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