Tring to get my head round the NI increase proposal

[notnowbernard]

But don't really understand it fully

Please explain in a nutshell for me

Labour: increase NI to have to cut spending less ; Con: NI the same but cut spending

Have I got this right?

God that sounds garbled, sorry

My take on it is:

Labour will increase NI in order to pay a % of the national debt.

Tories say they can save money through government efficiency savings so will not need to make the NI increase. The money rasied through savings will pay off a % off national debt.

Libs say Tories cannot make those efficeny savings (they point to David Cameron a little while ago saying labour efficiency savings were a fabrication) and they need to say what they will cut in order to pay the % off national debt off.

Roughly that's how I read it.

Increasing NI seems like a very easy and lazy target to me. It won't be the first time they've done it either.

Thanks!

My immediate thought was this: if the Tories aren't raising taxes, how are they gonna sort the financial crap then?

If I understand NI correctly it also hits lower earners disproportionately hard.

So is this why Businesses are opposed to it? Because they'll have to pay out more?

NI increase will hit those who earn over £20k so not the really low earners but it's a tax on jobs basically as it will also cost the employer more to employ people although tbh I don't understand why, I just know it will as it was talked about on question time which is why business are opposed to it.

AM going to try and stay awake for QT!

The increase in NI by Labour will come in from April 2011 onwards. While the rates for both employees and employers increase, the threshold for employee NI has been increased so that anyone earning under £20,000 will actually pay less NI.

Businesses will incur an extra 1% employer's NI (the employer will pay 13.8% of an employee's gross pay), although this will be tax deductible for the business. PAYE and NI have to be paid over to the government monthly in most cases, so any increase here impacts on a business' cash flow as well as hitting the overall profit.

Meanwhile if the Tories make cuts to public spending of £6bn, there is the risk that this will also be a 'tax on jobs' because it will cause a contraction in ongoing public sector work resulting in increased unemployment and potentially threatening the economic recovery.

I have no idea what to vote by the way!!

It will cost employers more to employ people because they have to pay the Govt 12.8% (potentially 13.8%) of virtually all the salaries they pay (earnings over £95 a week I think).

WOnderful

OK so what does Nick Clegg say...

I saw a clip of Nick Clegg on the news and he wriggled around and looked pretty darned uncomfortable (schoolboyish even) without committing himself either way.

Same principles apply to any budget be it household or Government. So, if you have a big debt that you need to clear you could -

a) Increase Income substantially
b) Cut expenditure drastically
c) Increase income a bit and cut expenditure a bit

Over simplified I know but - Labour favour a); Tories favour b); Liberals, Plaid, SNP favour c), with biggest cuts being made by getting out of wars and not replacing Trident)

The arguments for NI rises includes the fact that people on benefits, and all those over pension age (even if still working or with big investment income) do not pay NI.

The arguments against NI rises includes the fact that employers have to pay NI contributions too for each employee, and a rise may force employers to cut their workforce. The employers NI contributions are not based on their profits but on the number of employees, so a company which is labour intensive and struggling, might well go under completely.

Like your style, Granny

I get simple analogies like that

Seriously, makes sense (I am a 32yr old, not a 12yr old, btw)

The Tories have still to decide how they will fund this tax cut in years 2 and 3. They have said in year 1 it will be funded by efficiency savings. No tax cut comes for free. What will they cut or what other tax will they raise in years 2 and 3? It's that simple. Sadly no one has bothered to ask the business leaders about that. We all potentially face a rise in VAT under the Tories, which they won't rule out. Wonder what Justin King at Sainsburys would find attractive about higher VAT?

You know that shocked feeling you get whenever you hear of a tax that you never knew of, it never really goes away does it.

Like when you open your first pay slip and realise you have to have to give money to governement in the form of income tax. Later on you realise why you need to pay that tax but at first it just the shocked feeling.

I just had that feeling again when I realised that business have to pay tax when they employ someone.

But wasn't it Labour who were talking about putting VAT on food and children's clothes?

I've just been looking at Labour's website for the hard facts on this, as I'm not convinced (as someone said) that there would be a NI cut for those earning under £20k. I've yet to find a single reference to the policy (or in fact any hard details about any policy...)

This is an analysis of the latest Labour Budget Report by the Institute of Chartered Accountants - at the foot of page 5 it goes on about NI increases. It also seems to suggest that the tax increases proposed by Labour are actually on the low side - if growth in the economy is lower than forecast, higher tax increases are likely.

Thanks, that clarifies the NI issue. So a small reduction if you earn less than £20k. There's another Labour policy I fall just on the wrong side of - I'll add it to the list.

My understanding is that labour intend to raise National Insurance contributions to help pay for/protect public services without increasing "borrowing" on the national debt. The conservatives claim that they would cut this tax (or not implement it)- yet they will still cut the debt. They say the money will come from "efficiency savings" hoping that people interpret this as everyone having to "tighten their belts a bit". Sounds fair and equal? Don't be fooled - that's not the way it happens. Many people have not spotted this slight of hand and will feel betrayed when the tories cut the jobs and sevices from underneath us - not other people - our jobs, our services. Of course it will then be too late, and we all can remember at leisure why it was that we voted them out of power last time.

"PAYE and NI have to be paid over to the government monthly in most cases, so any increase here impacts on a business' cash flow as well as hitting the overall profit."

Thanks for that info. It looks to me to be a bad idea, though unless you work in the finance department (or run a small business) it is invisible to most employees.

I assume it will force any public bodies (NHS, Schools, Universities, Police, Ambulance, Fire Service, Councils, etc) to also pay that portion over, leaving less funds for services, books, medicines, etc (when you consider they make up a massive group within the employed population).

Not sure how it makes much difference on being "tax deductible for the business" as they still have to pay up on time (or face penalties, no doubt!) and many firms are struggling at present to keep going.

Someone on a BBC radio breakfast show was saying that there is very little 'wriggle room' to increase prices to cover for extra costs, and meanwhile business rates are shooting up in many areas, and in some places whole streets of shops are expecting to go out of business as they cannot afford 50K in rates.

The fact that the Tories wont disclose their policy on VAT increases worries me,when they increases it to 17.5% it was in order to get rid of the dreaded poll tax,however when they replaced the poll tax with the council tax,Vat was not reduced back down to 15%.

Efficiency savings are always a red herring. All parties will claim that they'll find a few £billion of "efficiencies" here and there. But they are a drop in the ocean relative to the enormous levels of debt and even the mounts we need simply to service that debt.

A more honest approach would be to say that only significant tax increases and spending cuts will give the country any chance to pay down the debt in any meaningful way over the next decade or more (more likely more). No party seems to be giving the electorate the credit for being able to understand this basic reality so they're messing about with policies that fiddle with the margins of the economics without making any real impact on the overall financial position of the State.

Efficiencies are not really the answer to any major question.