The CONservatives NI Confidence Trick

One of the early arguments of this election has been over Labour's proposed 1% rise in National Insurance and Tory promises to scrap it, backed by top executives. A tax on jobs they argue, which it is. The Tories appear to have Labour on the back foot and a row has broken out how it will be funded. The Tories suggest the old chestnut of efficiency savings which can be found.

However the Tories are in fact proposing nothing of the sort. Their proposals will still mean that the 1% rise will occur, they are merely proposing to move the band so that it will still affect those earning over £35,000.

I have received this email from Technical Connection who supply detailed information and analysis to Independent Financial Advisers. I think it's worth repeating it in full here: (unfortunately it is subscription-only website so I can't link to it):

NATIONAL INSURANCE

Synopsis: The Conservatives’ proposals for NICs may not be what you expect

Date posted: Wednesday, April 07, 2010

On 29 March the Conservatives grabbed the headlines with a promise to reduce the NIC increases outlined by the Chancellor in his 2008 and 2009 Pre-Budget Reports. The Conservatives' ideas were subsequently backed by more than 30 leading business people in a letter to the Daily Telegraph. As a reminder, the current plans for 2011/12 are to:

· increase the main employer's Class 1 rate by 1% to 13.8%;

· increase the employee's Class 1 rates by 1% to 12% and 2%;

· raise the starting point for employee's NICs (the primary threshold) to around £570 above the personal allowance (to about £7,200), so that only those earning above about £20,000 will be worse off overall. There is no plan to increase the employer's starting NIC point (the secondary threshold) by a similar amount; and

· increase Class 4 rates for the self-employed by 1% to 9% and 2%, with the same adjustment to the starting point as for employees.

The Conservatives' plans do not change the 1% increases in the rates. Instead they propose the following revisions:

· An increase in the starting point for employee's NICs by £24 a week above the Labour figure to about £8,450, assuming 2.5% inflation. The Conservatives say that this would mean anyone with earnings of under £35,000 would not be worse off after the change.

· An increase to the UEL by £29 a week to around £46,500 (against £43,875 currently). This will not make much difference to high earners because they will also benefit from the cut of £24 a week in the starting point.

· A rise of £21 a week in the starting point for employer's NICs to about £6,950 (against a current £5,715).

The immediate annual cost of the Conservatives proposals is put at £5.6bn.

COMMENT

The message of the Conservative proposals is that for most people and employers the marginal rates of NIC will rise by 1% in 2011/12: whoever wins the election, salary sacrifice will become more attractive.

The Tories are not scrapping the NI rise at all, which is what has been widely reported, they are just moving the band from Labour's position higher up the salary scale.

Expect more of this spin and bluster to come.