A national disgrace?

For the merchant, even honesty is a financial speculation.

Wow, this national insurance row is hotting up. Now Jewson’s Peter Hindle has waded into it.

Businesses have had enough to deal with over the past few years without this. Now I know I’ve been harping on about the fact that the fiscal deficit has to be filled somehow and that things are going to get nasty but what annoys me most about this whole thing is not the rise itself.

Rather, it’s the patronizing way that the government is treating everyone who disagrees with them. The picture of Alistair Darling staring out of the BBC news website this week under the headline “Darling: NI rise will not cost jobs” just made me realize why so many young people decide not to vote because they can’t trust politicians. Even Labour’s own Stephen Timms, financial secretary to the Treasury has come out and admitted that the rise will mean job losses eventually.

And how dare Brown be so arrogant as to claim that the business leaders backing the Tory pledge have been ‘duped’ by Tory plans to reverse the rise.

It certainly won’t actively create jobs that’s for sure and will probably cost them in the medium to long term, depending on how well a business has coped with the recession. It is a tax on businesses and on businesses that have struggled throughout the last couple of years as the banking crisis took its toll far and wide.

It’s one of those peculiar truisms that more businesses go under when emerging from a recession than do when entering it, and, arguably, construction has been harder hit than other sectors this time round; how many construction industry businesses will struggle even harder with this tax?

Not that the most likely alternative is any more palatable really. VAT could go up, indeed Gordon Brown has said that the Government considered at, but felt that an NI hike was a fairer way to raise the cash.

VAT is paid by everyone but there is the argument that, in some ways, it is a discretionary tax since there is some element of choice – in retail high street terms anyway as to whether one purchases or not. And the argument that it hits the lower paid disproportionately hard can be countered: higher earners spend more – they buy more, higher value ‘stuff’.

But then there is also the argument that because VAT is a tax levied on everyday products and services, after the first shock, you just take it in your stride. The Tories love VAT hikes because it allows them to raise the dough without having to resort to headline income tax increases – it was a Tory Chancellor, after all, who introduced it, another one that sent it soaring from 8% to 15% and a third that made it 17.5%.

The European average VAT rate is 21% – even moving a little bit towards that would bring in more money than the £6bn of efficiency savings that the Tories claim will pay for their squashing of the NI hike.

Then again, a rise the rate of VAT isn’t going to sit well with the arguments made by the FMB, the CPA, the BMF and the Get Britain Building and Cut the VAT coalition that we need a VAT rate of 5% on building repair and maintenance in order to help bring the RMI sector out of recession.

There’s no way around the fact that money – a lot of money- has to be raised from somewhere and that somewhere is probably going to be the taxpayers, both individual and business.

I’m not enirely sure yet where I stand on all this. But I do know that putting yet more obstacles in the way of businesses that are trying to get over the troubles of the past two years is going to make that recovery that bit harder.

About Fiona Russell-Horne

Group Managing Editor across the BMJ portfolio.

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