Page last updated at 12:25 GMT, Monday, 5 April 2010 13:25 UK

Chancellor - Nat Insurance rise 'will not cost jobs'

Alistair Darling

Chancellor Alistair Darling has denied Conservative claims that Labour's planned rise in National Insurance would lead to job losses.

He said he believed the economy would be growing - and new jobs being created - by the time of the increase in 2011.

But the Tories have pledged to cancel the bulk of the hike and say they have no plans to introduce any other tax rises, including on VAT, if elected.

The Liberal Democrats said the Tories were "treating people like fools".

Under Labour plans, National Insurance (NI) contributions for both employees and employers would increase by 1% from April 2011.

But if they win the election, the Tories plan to scrap the rise for anyone earning less than £45,400 a year, and also reduce the tax burden on firms.

'Manageable' impact

The Tories say Labour's actions would be a tax on jobs, but speaking to BBC Radio 4's Today programme on Monday, Mr Darling denied this was the case and insisted employment would continue to grow.

"The last time NI went up was in 2002... employment after that went up," he said.

"Why? Because the economy was growing after that. Now if you look at the Budget overall and you look at what we are doing in terms of supporting the economy and the other measures to help businesses and so on, we believe that employment is going to start to grow."

Last week, Mr Darling was asked by the Treasury select committee to put a figure on the number of jobs that could be lost as a result of the policy.

He refused to give a number, saying: "We said we think the impact [on jobs] is manageable, it'll be limited, because you've got to take into account everything else that's happening at the time."

Gordon Brown has also defended the decision to increase NI contributions in his Easter podcast, drawing a comparison with footballer Wayne Rooney's foot.

[Our] plans do not involve an increase in VAT
Shadow chancellor George Osborne

"After an injury you need support to recover, you need support to get back to match fitness, you need support to get back your full strength and then go on to lift the World Cup.

"If we try and jump off the treatment table as if nothing had happened we'll do more damage to the economy - and frankly that means we risk a double-dip recession."

Labour has claimed the Conservative plan could only be funded with a rise in VAT.

But shadow chancellor George Osborne said he did not expect to make any more tax rises, other than those already outlined - such as the new top rate of tax for the highest earners - to fund his policies.

'Favourite stealth tax'

"The plans we set out involve around 80% of the work being done by spending restraint, about 20% coming from tax increases.

Shadow Chancellor George Osborne: "We can deal with wasteful government spending"

"The tax increases are already in place. The plans do not involve an increase in VAT."

But he said that he, like any other "shadow chancellor or chancellor in Britain over the recent decades", could not absolutely rule out any future tax rises.

Earlier this week, 37 business leaders, from companies including Marks and Spencer and Diageo, backed the Conservatives' plans on NI.

But Mr Brown said despite this there was "widespread agreement" among economists and businesses - including the CBI, IMF and the Institute for Fiscal Studies - that it would be "wrong" to take money out of the economy this year to fund the policy.

Any increase in tax is unwelcome, that's not the issue - the issue is what can you do to change it
Lib Dem leader Nick Clegg

The Tories, however, have unveiled a new campaign poster claiming the NI increase would "stamp out" economic recovery.

Calling it Labour's "favourite stealth tax", they say they have calculated that the revenue the Treasury received from NI had risen by 22% in real terms since 2001-02 - five times the growth in income tax receipts over the same period.

But Prof Richard Portes, from the London Business School, disagreed that raising NI would hit jobs - he is one of four economists who have backed government plans in a letter to the Times newspaper.

"[The] effect on employment will be second order, very small, if there's any effect, and it's not really worth the discussion that has gone into it," he told the BBC. "This is a very minor additional cost relative to the total cost of labour."

For the Lib Dems, leader Nick Clegg said: "Of course business people are going to say they don't want an increase in National Insurance. I don't think an increase in National Insurance is a good idea.

"Any increase in tax is unwelcome, that's not the issue. The issue is what can you do to change it.

"David Cameron is treating people like fools. He thinks that you can promise the earth and you're not going to spell out how to pay for it."

The Tory policy has also been attacked by think-tank the King's Fund, which accused the party of a "sleight of hand" over a promise to use the NI freeze to help fund giving patients in England access to cancer treatments not currently approved for use.

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