Thursday, 9 March 2017

Spreadsheet Phil Gets His Boxes Mixed Up

And there was us thinking he was a safe pair of hands. The Chancellor Philip Hammond yesterday reneged on a manifesto pledge and increased the rate of National Insurance that the self employed pay.

The excuse for this, in addition to wanting to help balance the books - a laudable aim - is that the current system is unfair because those who are employed by employers and not responsible for their own national insurance and tax are paying more than the self employed. But then the self employed enjoy this advantage because they do not have the benefit of having an employer stand behind them, do not benefit from sick pay, holidays and the security that conventional employment gives. Their NIC advantage is actually only fair. Even if it weren't, wouldn't it be a better idea to cut taxes for the employed than raise them for the self-employed? Isn't that what a Tory ought to want to do?

Its good that the Chancellor is pursuing fiscal rectitude once again. I applaud him for that. But why do it on the backs of the self employed who are part of the reason the country has enjoyed a jobs miracle in recent years. This measure, though prima facie unfair anyway, could backfire on the government by increasing unemployment or at the very least lead to a reduction in the rate that unemployment falls, a measure that is already under pressure.

That the Chancellor decided to crack down on those who trade through personal service companies and pay themselves in dividends rather than in salary - this applies to me incidentally - is fair enough. This is an aggressive form of tax avoidance. But hitting national insurance contributions is a measure that will hit the legions of self employed who are often the just about managers that Theresa May said she wants to help.  The nation's white van men and women, delivery drivers, hairdressers, legions of artisans in the building trades and various others who are self employed will be hit. It doesn't even raise very much money.

And the fact that there has been such a boom in self employment is real, physical proof of a Conservative argument: that lower taxes stimulates economic activity and pushes more people into employment. Furthermore the self employed, because they are focused on the improvement of their lot through hard work and self reliance are natural Conservative voters. That ought to be the really winning argument. But Mr Hammond just sees them as a cost to the Exchequer, a classic case of Treasury groupthink. One cannot help being reminded of the previous parliament when Wallace (Ed Miliband) argued that the Government had, by cutting the top rate of tax, written a cheque to millionaires, thus fundamentally misunderstanding that it is not the Government's money, it is ours. Mr Hammond presumably agrees with Wallace.

Why is it, do we think, that the Government is happy to ditch one inconvenient manifesto pledge but is still stubbornly sticking to its idiotic pledge to spend 0.7% of GDP on foreign aid when it has been repeatedly demonstrated that this money is being wasted or spent on consultants and projects that few of us consider to be aid at all? If money needs to be found then it should be found from this budget and indeed the entire department of DFID could be subsumed into the Foreign Office saving millions. There is plenty of other waste that could and should be lopped off Whitehall departments full of career civil servants with low productivity but ultra secure pensions rather than hit the striving working and middle classes for the sin of being self employed, something that makes them entrepreneurial and strivers, something this Government should be encouraging.

It is good news that the national debt is now expected to start reducing as a percentage of GDP, the preferred measure for this rather than in pure cash terms. But this just disguises the fact that the national debt is still being added to at an alarming rate, even if that rate has thankfully diminished thanks to better than expected tax income. Next year however the deficit is expected to go back up again, although of course this may be another prediction that is revised. It remains important to get the deficit under control and this also is slowly, too slowly, being achieved. But this is a Conservative government that ought to be making our economy more competitive as we prepare for Brexit. It could and should be cutting taxes. Instead it has repeatedly raised them and introduced an increase in stamp duty that has caused our housing market to stall. So a measure to raise money has actually led to a decrease. You might have hoped that a Conservative government might have seen that coming and avoided a trap that Labour Chancellors usually fall into.

Many of us had hoped that Mr Hammond would be a reforming Chancellor in the mould of Nigel Lawson or Ken Clarke. There is still opportunity for him to be that, perhaps when he starts presenting his Budget in the autumn instead of the spring. But thus far that sensible reform is the only noteworthy measure he has introduced. The jokes were certainly good but the content left a lot to be desired.

The Chancellor should think again on his National Insurance measure and back down, lest he suffer the way that George Osborne did with his equally ill thought through pasty tax omnishambles. The papers today are utterly disastrous for the Chancellor and so unhappy Tory MPs may force him to. And they should as soon as possible.

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