Andrew Grice: National Insurance, a 'game-changing moment', and a brazen pitch for votes

Inside Politics
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The Independent Online

The location of the press conference was fitting. George Osborne, the shadow Chancellor, announced his flagship general election policy to reverse Labour's planned rise in National Insurance contributions (NICs) in the ground-floor media centre of Millbank Tower, Westminster, a building which came to symbolise the control-freakery and spin of New Labour.

Tony Blair and Gordon Brown staged many such events in the same venue before the rent for Labour's offices upstairs shot up and the cash-strapped party moved out. Tory headquarters is now in the next block.

Although we could play the tapes back and find plenty of falsely-raised hopes or broken promises among the Blair-and-Brown election pledges made on that platform, I doubt we would discover such a brazen pitch for votes on such a threadbare basis of policy as Mr Osborne offered us this week. With Labour, the spin was usually based on some substance and credible-looking detail. Yet the shadow Chancellor managed to pull off what the Tories regard as a game-changing moment ahead of the 6 May election that Mr Brown is expected formally to announce on Tuesday.

Mr Osborne said that the 1 per cent rise in NICs due to take effect in April next year would be halted for all employers and for workers earning less than £35,000 a year. The decision wasn't a surprise. What was a shock was the way he would find the £5.6bn needed – conjuring up another £12bn of government efficiency savings on top of the £11bn already promised by Labour on similar items such as back-office and property costs, IT programmes and buying goods and services.

Although the shadow Chancellor could not provide any specific savings, his move won plaudits from our Tory-dominated newspapers, which hailed his "tax cut". If Alistair Darling had announced in last month's Budget he was halting the NICs rise he unveiled last December thanks to another £12bn of efficiency savings, he would have been crucified by the same papers.

Perhaps I shouldn't have been so surprised. The previous week, I had been told by a Tory source that the party would soon pledge to block the NICs increase. "We have found a wheeze," the source said. I wrote the story on the news pages but left out the quote because I didn't think that David Cameron and Mr Osborne would resort to a "wheeze".

Why? Both have been commendably dismissive – in public and private – of relying on "efficiency savings". Both bear the scars of the 2005 election, when the Tories under Michael Howard used £35bn of "efficiency savings" identified by the company troubleshooter David James to fund £4bn of tax cuts.

"People didn't believe it," Mr Cameron said of the James review in 2008. He recalled that the Government efficiency drive was such an old trick that an episode of Yes, Minister was devoted to it; the promised savings never materialised. In January the Tory leader said: "I've got to find the savings before I can make the promise [on NICs]... If I can't I won't."

Similarly, Mr Osborne's mantra was that he would never fight an election on "unfunded, upfront tax cuts". After the 2005 election, the new shadow Chancellor said the James report was not convincing enough. "If you want to cut taxes you can't simply rely on more buoyant tax revenues, you can't simply rely on cutting red tape – you've got to look for real areas where you can reduce demands on the state." Later he said the public were rightly cynical of promises to cut taxes produced "like rabbits out of a hat" at election times.

The Tories have changed their tune. The only conclusion is that they were stung by an adverse reaction in the opinion polls to their "age of austerity" rhetoric and pledges to reduce the £167bn deficit by spending cuts.

The Tories had road-tested this week's announcement in advance. Focus groups told them people felt overtaxed, and that it was time the public sector tightened its belt (as they have done in the recession) by cutting Whitehall waste. Well, who wouldn't prefer someone else to bear the pain? The same goes for the growing number of businessmen rallying behind Mr Osborne's plan. They have a direct self-interest in avoiding the NICs rise for employers. They would not cheer Mr Osborne so loudly if they had to raise their prices by 2.5 per cent because he increases VAT on becoming Chancellor, as he might well do.

Mr Brown rejected such an option when it was floated by the Treasury before the pre-Budget report in December. He and the Schools Secretary Ed Balls argued that a NICs rise was fairer, because everyone, including pensioners, the poor and the jobless, would be hit by a VAT increase, while raising NICs means those higher up the income scale pay the most.

The NICs route worked for Labour in 2002, when as Chancellor Mr Brown increased them to fund higher health spending. It was a rare event: a popular tax rise.

History looks unlikely to repeat itself. The outcry from business has tipped the scales the Tories' way this time, giving them momentum just as the election battle gets underway. For now, Labour is fighting the tax-and-spending war with one hand tied behind its back; Mr Darling is being ultra-responsible by refusing to rule out a VAT rise if Labour wins the election, blurring a clear dividing line between the two main parties.

In contrast, this was the week when the Tories abandoned the moral high ground on cutting the deficit for the low politics of unbankable promises of efficiency savings. "We got away with it," one Tory frontbencher confided sheepishly yesterday.

Indeed, they did. But the Tories now have a long and growing shopping list of commitments on both tax – blocking the NICs rise, rewarding marriage, freezing council tax, cutting inheritance tax – and spending: protecting health and overseas aid and guaranteeing £4bn a year of payments to pensioners. It is a programme that no longer adds up.

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