Tuesday 30 March 2010

That £150 National Insurance pledge

Lobbydog was at a briefing with Phil Hammond yesterday picking over details of the Tory “7 out 10 people will be £150 better off” pledge.

During the briefing I discovered an interesting insight into their £150 figure.

LD: You’ve made the assertion about people being £150 better off, which I’m assuming relates to National Insurance only.

But have you done any work more generally. Are you still confident making that statement in relation to the overall tax burden and to other handouts that people get – welfare, tax credits and so on?

Will people still be so much better off taking everything into account?

Hammond: To answer that question in a complicated way – there are two affects. And you’re probably right to point out that actually if people pay less NIC they may be eligible for slightly less top up credits, for example, so that’s a fair point to make.

But on the other hand the IFS say that the reduction in employers’ National Insurance contribution will feed through into higher wages as the Labour market starts to recover. So there will always be second order effects from all of these changes.

The top line is that most people are going to be £150 better off in 2011/12 than they would have been.

So because people will pay less NIC, they may also get less top up tax credits – giving with one hand and taking away with the other, critics will say.

Those same critics would go on to say that relying on private companies to make up any difference by increasing wages seems very hopeful. Wage rises are not high on many bosses’ agendas right now.

In truth, unless one knows all the numerical workings behind the pledge, it’s difficult for me, or anyone, to say whether people would be a few pounds better or worse off after all the “second order effects” had taken place.

Putting figures aside though, the policy does represent this – a decision to let people keep money they earn and use it as they see fit, rather than having to hand it to the Government and receive it back as a hand out.

That is something that should appeal to Tory voters.


Oldrightie said...

"That is something that should appeal to Tory voters."

You mean all voters, whippersnapper.

Mrs Rigby said...

"because people will pay less NIC, they may also get less top up tax credits"

No, because it'll maintain the status quo, surely.

The rise hasn't happened yet.

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