Tories propose tax cuts for firms that create jobs

New businesses would get big tax breaks for job creation under Conservative proposals announced today. George Osborne told the Tory party conference  that 60,000 jobs would be created by the scheme, intended to encourage investment in new ventures. The Shadow Chancellor said that employers creating new jobs would not have to pay National Insurance contributions for the first two years of a Conservative government. He estimated that cutting the charge, which amounts to 12.8 per cent of an employee’s salary, would cost the Government around £250million a year.

“We will send a message loud and clear that this country is open for business,” he said. “Invest here, set up your business here, come and make your enterprise here and we will support you.” Mr Osborne said the tax cut would be funded by savings to be announced during the remainder of the conference. “This is just another example of the Conservatives being the party of jobs at a time when Labour are the party of mass unemployment,” he said.

The exemption would apply to the first ten employees hired by a business during its first year, up to the upper earning limit of £844 a week per employee, or about £44,000 a year. Osborne calculates that a new small business with ten employees on an average salary of £25,000 could save up to £25,000 a year at current tax rates.

Well-intended this might be, but the proposal is proof positive that the Conservatives’ policies are no more grounded in principle than Labours’. The scheme itself could indeed be expected to produce new jobs, but

it is wide open to exploitation, since it creates obvious looopholes with endless possibilities for disputes.  It will also keep a few platoons of bureaucrats occupied dealing with it and combing through the returns to make sure the concession is not being exploited. Moreover, that this proposal has been made is also an indication that the shadow Chancellor does not understand that Employee’s NI and PAYE are only nominally taxes on employees, when in reality they too are burdens falling on employers and a disincentive to employment and ought to be cut, probably by raising tax thresholds. He hasn’t even the wit to realise that there would be votes to be won from the low-paid from such a proposal. What is so special about exempting the first ten employees? Why not nine? Or eleven? Why for two years? Why not eighteen months? Or three years? And what happens at the end of the period? This sort of arbitrariness is an indication that we can expect nothing better than an ad-hoc approach to policy from a Conservative government. The Conservatives, like Labour and the Liberal Democrats, seem to be almost entirely lacking in a principled understanding of how taxation affects the economy.