UK Parties Tussle Over Tax

by Robert Lee, Tax-News.com, London

06 April 2010

The issue of tax is shaping up to be a key battleground ahead of the UK election as the opposition Conservatives step up their attacks on government plans to increase National Insurance (NI) contribution rates.

With Prime Minister Gordon Brown widely expected to seek a dissolution of Parliament on April 6 ahead of a May 6 general election, the Conservatives have released the results of research which claims to show that the National Insurance burden has risen five times faster than that of income tax over the past ten years.

According to this research, since 2001/02 revenues collected from National Insurance have risen by 22% to just under GBP95bn, while receipts from income tax have risen by 4% to GBP138.8bn over the same period.

The Conservatives are making the government's proposal to increase National Insurance by 1% from next April, a measure they have dubbed a "tax on jobs," a central part of their election campaign, with Shadow Chancellor George Osborne set to unveil poster on April 5 under the slogan "Gordon Brown's favourite stealth tax."

The NI increase proposal has been widely condemned by the business community, and in something of a desperate response to the Conservative tactic, the ruling Labour Party is claiming that Osborne's plans to roll back part of the increase, should he become the next Chancellor, would somehow be bad for the economy as vital public spending will inevitably have to be cut, or other taxes increased to pay for it.

Business Secretary Lord Mandelson has accused the Tories of "peddling a deception" with their plan to approximately halve the scheduled NI increase, but Conservative leader David Cameron hit back in an article published in The Times by arguing that the tax hike will "kill the recovery."

"We’ll cut Labour waste to stop it," he wrote, adding that this policy has already been "endorsed by business leaders with their letter to this paper (last Thursday.)"

Under the government's plans, which were confirmed in the 2010 budget last month, the main rates of Class 1 and Class 4 National Insurance contributions will be increased by 0.5% to 12% and 9% respectively. This will be in addition to the 0.5% increases already announced in the 2008 pre-budget report. Furthermore, the employer rate for both Class 1A and 1B contributions will be increased by a further 0.5% to 13.8%.

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