George Osbourne's pledge to partly roll back the hike in National Insurance announced by the Government, and pay for that tax cut with an attack on wasteful spending, is very welcome. Some commentators may describe this as an unfunded tax cut but, as we show in our new book How to Cut Public Spending (and Still Win an Election), it is eminently doable.
National Insurance is a tax on jobs. Following the recession ONS statistics show that 2.45 million people were unemployed at the last account. Young people are particularly hard hit, with 715,000 18-24s unemployed at the last count. And the true picture is probably even worse than those headline figures suggest, because it is obscured by people leaving the labour market and the big rise in unsustainable public sector employment. Ensuring that there are as many opportunities as possible for people to find their way back into work should be a key priority for government.
Undermining people’s chances by making it more expensive for employers to take people on is a dreadful idea. Analysis from a range of economic forecasters suggests it will increase unemployment. Research for the Federation of Small Businesses by the CEBR suggests that adding 1p to Employers’ National Insurance Contributions will cost 57,000 jobs at SMEs alone.
The challenge is to pay for this eminently worthwhile tax cut while still taking credible action to deal with the deficit. It will be easier as all those people not rendered unemployed will be paying income tax instead of taking benefits. But that won’t do the job entirely. The Conservatives are relying on pushing through greater efficiency savings than the Government, with the help of experts like Sir Peter Gershon. Efficiency savings are a good idea, and they are right to look at IT projects as a big area where the Government has wasted money. Our research suggests the average public sector capital procurement project goes over budget by a third.
However, there have been mixed results from previous top-down efficiency drives. If the Conservatives really want greater efficiency then, as Mike Denham writes in our new book, they should look at fiscal decentralisation which is associated with more efficient public sectors internationally. And they need to go beyond broad efficiency measures and look at cutting ineffective and non-priority spending. Scrapping the Regional Development Agencies for example, could help pay for this cut in business tax which will do far more to help most businesses than their grants.
This is a good announcement from the Conservatives. If they show greater clarity on spending cuts, this could be the start of an extremely credible package for jobs, growth and sustainable public finances.
National Insurance is a tax on jobs. Following the recession ONS statistics show that 2.45 million people were unemployed at the last account. Young people are particularly hard hit, with 715,000 18-24s unemployed at the last count. And the true picture is probably even worse than those headline figures suggest, because it is obscured by people leaving the labour market and the big rise in unsustainable public sector employment. Ensuring that there are as many opportunities as possible for people to find their way back into work should be a key priority for government.
Undermining people’s chances by making it more expensive for employers to take people on is a dreadful idea. Analysis from a range of economic forecasters suggests it will increase unemployment. Research for the Federation of Small Businesses by the CEBR suggests that adding 1p to Employers’ National Insurance Contributions will cost 57,000 jobs at SMEs alone.
The challenge is to pay for this eminently worthwhile tax cut while still taking credible action to deal with the deficit. It will be easier as all those people not rendered unemployed will be paying income tax instead of taking benefits. But that won’t do the job entirely. The Conservatives are relying on pushing through greater efficiency savings than the Government, with the help of experts like Sir Peter Gershon. Efficiency savings are a good idea, and they are right to look at IT projects as a big area where the Government has wasted money. Our research suggests the average public sector capital procurement project goes over budget by a third.
However, there have been mixed results from previous top-down efficiency drives. If the Conservatives really want greater efficiency then, as Mike Denham writes in our new book, they should look at fiscal decentralisation which is associated with more efficient public sectors internationally. And they need to go beyond broad efficiency measures and look at cutting ineffective and non-priority spending. Scrapping the Regional Development Agencies for example, could help pay for this cut in business tax which will do far more to help most businesses than their grants.
This is a good announcement from the Conservatives. If they show greater clarity on spending cuts, this could be the start of an extremely credible package for jobs, growth and sustainable public finances.
