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The increase in national insurance will cost jobs

23 March 2010 14,513 Comments

Tomorrow is Budget Day, but one tax increase has already been announced: the rise in national insurance rates.

Employers national insurance has long been viewed by many economists as simply a tax on jobs. It is a direct imposition on companies payable as a percentage of (most) salaries; in 1997 it was levied at a rate of 10 per cent but from April next year it will be 13.8 per cent.

It does not take a genius to grasp that a tax of this nature will lead to a cut in incomes and a cut in employment. The attraction of it to this government rather than one of the alternatives – a rise in the VAT rate, perhaps – is that it is more stealthy: most of the electorate won’t notice it, at least, not until their jobs disappear. That may make it, to Gordon Brown’s way of thinking, a better political bet.

The British Chambers of Commerce think it’s a daft idea; a new report, Taxation, Growth and Employment from Policy Exchange (the pdf file can be downloaded here)â”¬Ă¡discusses research that reveals a direct link between higher NI rates and unemployment.

When overall taxes have to be as high as is now required to feed the hungry demands of state spending, that is bound to have a depressing effect on the private sector and on economic growth. The only solution, which would eventually lead to higher growth, is to cut that state spending by more than any party will dare promise this side of the election.

Let’s hope they have the sense to do so once the votes have been counted.

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