08 April 2010

Taking on the Tories on NICs

The National Insurance contributions row is running on and on - the Tories appear to have a steady stream of extremely highly paid business people on hand to argue that closing £6bn of the public spending deficit by raising NICs in 2011 is a bad idea.

This should be an easy slam-dunk for Labour to respond to. All it needs to say is that the Tories would be deliberately opening up an extra £6bn hole in the deficit at a time when the financial markets would expect them to have a clear plan to close that deficit (and indeed until 2 weeks ago they had a plan, of sorts).

The Tory counter-argument will be that they can find £6bn extra "efficiency savings" in public spending that Labour can't. Now, to be sure, this efficiency savings stuff is largely BS. You can - at least in theory - get modest efficiency savings out of the public (and private) sector every year through productivity growth - technological improvements which allow you to do more with less. What you can't do is invent several tens of billions of EXTRA efficiency savings - on top of that gradual drip-drip improvement. There is a problem here, because both Labour and the Tories have conjured ridiculously large efficiency savings estimates out of thin air - have a look at some of the suggested savings in various departments in the 2010 Budget and you'll see what I mean. The cuts which are already scheduled will DEFINITELY hit front-line services. In other words, both Labour and the Tories are already engaged in a con-trick with the electorate.

However, daft as this situation is, it doesn't harm Labour's case on this particular issue, because Labour can point out that, given that the announced cuts are ALREADY going to bite into front-line services, an additional £6 billion will hurt that much more. In other words, this opens the door towards portraying the Tories as the "slasher" party in the way that Labour did quite successfully in 2001 and 2005.

All of which may explain why Gordon Brown seems relatively pleased about the NICs row so far: it enables an opportunity to put "clear red water" between Labour and the Tories. To be clear, this won't be about Labour defending public services vs Tory cuts (even though as it should be if Labour had the guts); instead it will be about Labour's savage cuts vs the Tories' complete destruction of a huge proportion of the public sector. It's the wrong place to put up a battle ground - but it's still a battle ground, and played the right way, having this fight could actually help Labour as the campaign goes on.


Van Patten said...

I don't think someone's salary is relly relevant to the validity of their argument and that works both ways. I actually tend to agree with you in so much as some level of tax rises is likely to be necessary and that without it the deficit will be difficult to close. For me, National Insurance is something of a ridiculous concept anyway, created six decades ago when life expectancy even upon reaching retirement was far lower. May as well go the whole hog and absorb it into the Income tax rates anyway.

I have a hard time with the concept of what exactly 'Front Line services' are as well. Are you seriouslky suggesting that in an overall budget of £600 billion, efficiency savings of more than 2% are unattainable. I agree the Tories plans might be over-cautious. If Brown (or any other vaguely Leftist figure) wants to suggest the current level of public expenditure, seemingly without limit or whit of positive impact is sustainable then they are just plain kidding themselves. My only issue with £6 billion is it constitutes about 3% of what I estimate is ACTUALLY required to stave off imminent national bankruptcy.

giroscoper said...

I think the problem isn't that we are spending "too much" on public services - it's that we aren't taxing enough. Govt revenues were inflated by the "long boom" of 1997-2007 and the "real" level of long-term revenue is probably where we are now... we need to raise tax by about 5% of GDP (or so) and then we're in a long-run sustainable position. Simple really.

I actually agree with you for once on the NICs/Income Tax thing. They should be rolled into one - it's insulting the intelligence of voters to suggest that they don't see NICs as a tax. Oddly enough, this was proposed by the SDP/Liberal Alliance as a policy in 1987 but the "36% income tax" headline did not play well with the electorate, apparently. It's at times like this that I really miss Roy Jenkins...