Friday, 9 April 2010

NICs vs. VAT

So, the main theme of the first view days of electioneering has been the proposed rise in National Insurance Contributions in April 2010 for those earning over £20,000 p.a.

The Tories have, they say, identified the opportunity for additional cost and efficiency savings which they propose to use to remove this rise for those earning under £35,000, arguing that the current proposal would be bad for employment levels at a time of recovery.

This is an argument that may have some validity, although the same arguments were made against the introduction of a National Minimum Wage. The hope would surely be, however, that by the time the tax is introduced the country will have had a year of growth and companies and individuals will be better positioned to deal with the increased costs.

There is, however, some doubt as to whether the additional savings (on top of efficiencies already announced in Darling's budget) are actually achievable. The willingness to commit these (if they do exist) to tax cuts rather than reducing the deficit smacks of opportunism.

Hanging over the argument is the suspicion that VAT may have to be raised by an incoming government. On this issue, the Tories have form, having done so early in Thatcher's first government despite election denials of this possibility.

The argument will be that made that "the books are worse than expected" and that VAT is a discretionary tax. The first point is nothing more than lazy politics but I find the latter argument somewhat disingenuous. While a number of essential items are either zero-rated or taxed at a lower rate, people still have to live and that means spending money on VAT rated items.

If VAT truly was a discretionary tax, raising it would have an impact on spending which may adversely affect what will hopefully be continued recovery. Instead, it is seen as a reliable and easy way to increase government income for which everyone will pay.

So, it seems that we now have a choice - NIC increases or VAT rises. Indeed, it's not impossible that we'll end up with both in due course!


P.S. These entries are in orange for a reason - it's a not so subtle clue as to my voting intentions!

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