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Are the Tories really 'stopping the tax'?

By Alice Tarleton

Updated on 09 April 2010

FactCheck runs the rule over claims from leading businessmen on the Conservative party website that stopping the planned national insurance rise will protect jobs.

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The claim
"Stopping the national insurance rise will protect jobs and support the recovery."
Open letter on Conservative party website, signed by leading businessmen

The background
More business leaders came out against Labour's plan to increase national insurance yesterday – something the Tories are campaigning furiously about. "It's the wrong tax at the wrong time for the wrong reason, so cut the waste, stop the tax and we’ll be better off," David Cameron said on the campaign trail in Bolton on Wednesday.

Labour has pencilled in a one percentage point rise in national insurance from 2011. But although the Tories plan to scrap what they see as the most damaging part of the tax rise, their own policy document states they aren't going to reverse it completely.

The Conservatives claim Labour's plans would cost 100,000 jobs – but does this mean their tax plans would stop these job losses?

The analysis
Under the Tories' plans, employees' national insurance (which works like income tax) would only increase by one percentage point for people earning over £35,000 a year, rather than the £20,000-plus pencilled in by Labour.

And the Tories would raise the threshold at which employers’ national insurance – the so-called "tax on jobs" – is paid from £5,700 a year to over £20,000. This would more than halve the total amount raised by the one point tax rise.

We looked earlier in the week at the likely effect Labour's planned tax raise would have on unemployment, after a Tory frontbencher said it would cost "hundreds of thousands" of jobs. Although the economic evidence we looked at suggested there would be a detrimental effect, it fell short of backing up the scale of the claim.

The Conservatives own reckoning (which they see as cautious) is that Labour's plans, based on an extrapolation from independent research, would cost 100,000 jobs over the next decade.

They also told us they estimate their proposals would save 58,000 jobs, relative to Labour's plans. They don't plan to maintain the status quo (and save all of those 100,000 jobs) – so their plans would still involve a job-cost of around 40,000.

A Tory briefing released to the Newcastle Journal and seen by FactCheck sets this out in more detail. Based on the CEBR research (which we discussed in an earlier FactCheck) Labour's plans would cost 96,000 jobs across the UK.

The document also points out that respected independent think tank the Institute for Fiscal Studies estimates the Conservatives' plan to reduce employers’ national insurance would reduce the increased tax paid by employers, by around 60 per cent.

So do a bit of simple maths and reduce the impact on jobs accordingly, and the Tories' plans save around 60 per cent of the jobs lost under Labour's plans – 58,000. But that means 38,000 jobs lost under the Tories' plans, compared with the status quo.

The verdict
The Tories are scrapping a large part of Labour's planned national insurance increase. But they acknowledge they're not stopping it completely, although you might get a different impression when the phrase "stopping the tax" is used on the campaign trail.

According to the Conservatives' own estimates, their plans would cost around 38,000 jobs over the next decade compared to the current tax situation. This is still less of a hit than the 96,000 job losses they estimate Labour's plans would cause. But it’s not completely free from pain.

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