Brown takes aim at Cameron with attack on Tory 'savings'

Conservatives escalate war of words as PM rejects criticism of NI hike
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Indy Politics

Gordon Brown will seek today to halt David Cameron's early momentum in the general election campaign amid Labour jitters over Tory and business attacks on the Government's decision to raise national insurance contributions (NICs).

The Prime Minister will try to demolish Mr Cameron's claim that he could reverse the 1 per cent increase in NICs, due in a year's time, by finding £6bn of government efficiency savings.

Mr Brown will tell a London press conference that his Government is already securing £35bn of such savings over three years. He will argue that the Conservatives' figures do not add up as they would need to raise £6bn each year, not make a one-off saving, to prevent the NICs rise, and will accuse them of "giving up" on their plans to cut the £167bn public deficit.

However, the rift between Labour and the business world grew wider yesterday as another 30 bosses backed the Tories' stance on NICs, taking the total number to 68. Mr Brown suffered a further backlash after claiming yesterday that businessmen had been "deceived" by the Tories' policy.

Last night the Tories broadened their attack, suggesting that a re-elected Labour government could extend the 50p top rate of tax, which began to bite on earnings above £150,000 this week, lower down the income scale.

The Labour manifesto, to be approved today by a joint meeting of the Cabinet and the party's national executive committee, will include a promise not to raise the 20p basic rate of income tax. Mr Brown told Channel 4: "The income tax rate has come down from 23p to 20p and we've kept it at 20p and that is what we will pledge to do in our manifesto." The promise may also apply to the existing 40p and 50p rates.

A Tory spokesman said: "Gordon Brown is being deceitful – he is effectively raising income tax with his jobs tax. Labour had a pledge not to raise the top rate of tax in their last manifesto and Gordon Brown broke it so why should anyone believe him now?"

The Conservatives are delighted that the spotlight has remained on their flagship pledge last week to stop the NICs rise hitting all employers and workers earning up to £35,000 a year. Mr Brown accused the Tories of "misleading people", including the businessmen who have rallied behind their policy. He told GMTV: "I think they have been deceived because the big issue at the moment is can we sustain the recovery."

But businessmen queued up to criticise the Government. Luke Johnson, founder of Risk Capital Partners, dismissed Mr Brown's claim that the Tories would take £6bn out of the economy as "economically illiterate". He said: "The great challenge society faces is unemployment. The only cure is for the private sector to create new jobs. National insurance is a stealth tax on jobs, and will only discourage entrepreneurs from hiring new staff."

Paul Walsh, chief executive officer of Diageo, said: "National Insurance is a tax on jobs and at a time when we need businesses to create economic growth, we should be cutting waste rather than risking the recovery."

Richard Reed, whose Innocent Smoothies firm was visited by Mr Brown yesterday, said the NICs increase would make him "look more carefully at our payroll".

But Tesco refused to join the criticism. An executive said that the company would not oppose "whatever measures are considered right" to put the public finances back in order.

The row dominated the final session of Prime Minister's Questions of this Parliament. Amid heated exchanges, Mr Cameron attacked a "jobs tax that will kill the recovery".

Mr Brown said the £6bn the increase in NICs would raise was needed to maintain and improve schools, hospitals, the police and other public services. Cutting back would risk causing a "double dip recession" and "put public services at risk".

The Government claimed its economic strategy had been vindicated after the Paris-based Organisation for Economic Co-operation and Development predicted the UK economy will grow at the second-fastest rate of the G7 major economies in the second quarter of this year.

George Osborne, the shadow Chancellor, accused Mr Brown of "declaring war" on British business, but Nick Clegg, the Liberal Democrat leader, accused the Tories of "conning people" into thinking they were helping them.

The NICs rise: What will it mean?

"Tax on jobs" is an emotive phrase, but there is some truth in it. Employer national insurance contributions are a substantial tax that companies must pay for the privilege of employing people. So if a firm wants to offer a job to someone at a salary of, say, £20,000 they'll have to factor in about £1,900 in employer NICs on top of that.

From next April, the Government wants to add 1 per cent to the current rate of 12.8 per cent paid by bosses on that slice of earnings above about £15,000 a year. The Treasury also wants to increase employees' NICs, basically income tax, by 1 per cent. The Conservatives are pledged to cancel both increases for people earning between about £8,400 and £44,000.

In the short term, a hike in employer NICs will deter recruitment. So the Tories are right that it will damage the jobs market, which will still be fragile this time next year. Unemployment, and the fear of it, is poison to economic confidence, which in turn is key to the recovery. But employers usually pass on a rise in NICs to their staff, through lower wage rises. So the "tax on jobs" will gradually mutate into just another tax on wages.

The Tories plan to cut waste by £6bn, but in doing so they will take spending power out of the economy. And they want the spending cuts to be immediate, which would make the recovery less certain and jeopardise job creation, not just in the public sector.

Sean O'Grady