National Insurance cut is fooling nobody - Tories want the ultimate 'dead cat'

WAS last Wednesday’s economic statement from Chancellor Hunt devised with the coming General Election in mind? Of course it was. But whether it works in bolstering Tory fortunes is anyone’s guess.

It was certainly a very Tory budget: tax cuts, attacks on public spending and the demonisation of a new target group in the shape of those suffering long-term illness.

Let’s start with National ­Insurance. We persist in the myth in this country that this is not a tax but a ­contribution to a ­pension fund. It isn’t. There is no fund where NI contributions go to be invested so that returns can benefit the contributors in later years – there’s just the Treasury. Increases in the basic state pension don’t happen because fund managers made a good return in the previous year – but because of policy. And the state pension isn’t paid for just from NI contributions but from general ­exchequer spending.

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So, the cut in the rate of NI people pay is to all intents and purposes a cut in the tax on their income. The cut of 2% will benefit 27 million people – that’s half the electorate. And to make sure everyone notices, the cut is ­being fast-tracked to January so that the ­effect is not lost in other changes.

Will the bribe work? Probably not. For four reasons. The first is that just as imposing flat rates on everyone is ­regressive, so too is cutting them. Clearly 2% of £50k is a lot more than 2% of £25k. So, the more people are struggling on low incomes, the less benefit the 2% cut will have.

Secondly, the reduction in NI is a lot less than the extra income tax pretty much everyone is paying due to ­thresholds having been frozen – ­estimates suggest about a quarter.

And while the Tories try to pull the wool over people’s eyes, when it comes to studying their wage slip, most aren’t daft and can see what’s ­happening. The centre-right ­Resolution ­Foundation predicts that the average household will be £1900 poorer at the end of this ­parliament than they were at the ­beginning. That’s a historical first.

Thirdly, and speaking of not being stupid, most people will feel that the small increase in their bottom line that this change will bring still falls far short of the rising costs they are being squeezed by.

The overall rate of inflation may be falling but many costs for low and middle-income families are still going through the roof.

The Bank of England estimates the four million UK households who will move on to a new mortgage deal in the next three years face average increases of £220 a month. Energy prices are two or three times higher than two years ago and set to rise again, just as the Government refuses to offer any ­support with bills.

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Fourthly, the Government is giving with one hand and taking away with the other. This minor cut in tax is to be funded by another squeeze on public spending, achieved mainly by cutting real term wages.

Perhaps choosing NI as a ­mechanism may throw some scrutiny on just how strange this levy on earnings is. ­Because of the fiction that it funds the state pension, NI contributions stop when you get to pension age – even though you can keep on working, or in some cases, receive considerable ­earnings from investments without working at all. This ceased to be fair a long time ago and it is time we had an honest ­discussion towards building for a decent income in retirement, which everyone gets because they are a citizen, not because they have contributed to the NI scheme.

NI is completely reserved to ­Westminster, but we ought to be ­thinking now about how we can design and find a better, fairer system of ­social insurance in an independent Scotland. It wouldn’t be hard to do better than what we currently have.

Back to the budget ... sorry, statement. Much has been made about boosting productivity by changing business ­taxation, particularly by exempting capital expenditure from corporation tax.

Just before we examine that claim, a word about corporation tax itself.

The UK has one of the lowest rates of tax on business profits of any ­advanced capitalist economy. This is not a tax on business, only a tax on the profits they make after everything else is paid for.

A fairer, more progressive system would mean not only that new small and medium size businesses could be better supported, but that the big ­corporations would be expected to put more back into the communities which helped them generate their ­surpluses in the first place.

That is what we could do if we had power over taxing ­business profits – the power that comes with ­being a normal ­independent country.

TheUK’s regressive approach to ­taxing business profits runs through the latest wheeze on capital ­spending exemptions. Of course, business should be incentivised to invest in becoming more productive and, just as ­importantly, in becoming more sustainable. But that would require a plan, a set of targets about what the country wanted its businesses to do. There is no plan.

Instead, businesses can simply offset pretty much any spending on ­buildings, plants and vehicles for tax purposes. And it doesn’t have to have any impact on productivity. You could replace a machine that makes 10 widgets an hour with a new one that only makes eight. You would still get the tax relief. In truth, this is just a bung to businesses to get them to back the Tories – a bung which will cost taxpayers billions.

This is desperate stuff from the Tories, trying to pose as the party of business but without the first clue as to how to actually support and develop manufacturing. We can do better than this.

But the most desperate ploy of all in the Chancellor’s (below) statement is the creation of yet another Tory target. People to blame when the Tories won’t accept the blame themselves. Enter the long-term sick, particularly those suffering from mental illness.

They say the sign of a civilised ­society is how it treats its most vulnerable. By that measure, we are heading for barbarism.

The proposal to “close the file” on claimants who cannot jump through the myriad of hoops in their path to ­subsistence payments is beyond ­anything Margaret Thatcher and ­Norman Tebbit ever conceived.

It won’t work, how could it? And it won’t save any money. It’s not ­designed to. It’s the ultimate dead cat.

We know we have messed up, made you poorer, less safe, more miserable, say the Tories. But hey, look at these disabled “scroungers” taking your money.

Vile and reprehensible. The sooner they’re gone the better.