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Tory warning over benefit rises NI rise 'will lead to NHS cuts'
(about 2 hours later)
The Conservatives have accused the government of cynicism over rises in benefits, following suggestions they could be cut again after the election. The government's plan to raise National Insurance by an additional 0.5% "will lead to a real cut in health spending", the shadow chancellor has told the BBC.
Wednesday's pre-Budget report announced the bringing forward of 1.5% rises in child and disability benefits to 2010. George Osborne said it was "nonsense" for ministers to say they could raise NI and protect NHS budgets because the health service is such a big employer.
The think tank the Institute for Fiscal Studies suggests this will need to be funded by cuts a year later. He said the tax would leave the NHS with a £446m-a-year bill.
The government says extra help is being offered when it is most needed and will be reviewed in September 2010. The government said "difficult decisions" had to be made in order to reduce the UK's £178bn deficit.
The Treasury said the rises, which had been due in 2011, were intended to help people earlier and smooth out expected changes in inflation. 'Huge bill'
But the Tories said the public would not be fooled by the government's cynicism. In his pre-Budget report on Wednesday, Chancellor Alistair Darling said there would be a 0.5% rise in National Insurance and a 1% cap on public pay settlements from 2011.
Families and disabled people would be disappointed to learn the benefits increases would lead to real-term cuts later, they said.
National Insurance anger
Chancellor Alistair Darling's announcement of tax rises and spending cuts have come under attack not only from the opposition but also business and the unions.
Among the headline proposals were a 0.5% rise in National Insurance and a 1% cap on public pay settlements from 2011.
KEY POINTS OF PBR National Insurance up by a further 0.5% from April 2011Economy to shrink by worse than expected 4.75% this yearNew 50% tax on banker bonuses1p rise in corporation tax for small firms scrappedTax rebates for electric cars and wind turbinesState pension to rise by 2.5% At-a-glance: The key points Pointers for election fight Nick Robinson's view Q&A: What it means to you
The National Insurance increase - which will raise about £3bn a year - has angered the business community, which says it is a tax on jobs when the focus should be on economic recovery.
The increase, limited to those earning more than £20,000 a year, will hit about 10 million workers.The increase, limited to those earning more than £20,000 a year, will hit about 10 million workers.
According to Treasury estimates, someone earning £30,000 will be £90 a year worse off and someone on £40,000 will be £190 worse off, while someone earning £10,000 a year will be £110 better off.According to Treasury estimates, someone earning £30,000 will be £90 a year worse off and someone on £40,000 will be £190 worse off, while someone earning £10,000 a year will be £110 better off.
KEY POINTS OF PBR National Insurance up by a further 0.5% from April 2011Economy to shrink by worse than expected 4.75% this yearNew 50% tax on banker bonuses1p rise in corporation tax for small firms scrappedTax rebates for electric cars and wind turbinesState pension to rise by 2.5% At-a-glance: The key points Pointers for election fight Nick Robinson's view Q&A: What it means to you
But Mr Osborne said it was public services - and the NHS in particular - that would suffer because the government was the country's biggest employer.
"When they say they are protecting NHS spending what they don't tell you is that the NHS is probably going to have the largest National Insurance bill as a result of this tax change - a £446m bill," he said.
"So the idea that Labour was presenting yesterday that they can protect the health budget and increase National Insurance is a nonsense... it will lead to a real cut in health spending."
Ministers said their target of halving the deficit by 2013 meant "difficult decisions" but insisted that 60% of the burden of extra taxes would fall upon the top 5% of earners.Ministers said their target of halving the deficit by 2013 meant "difficult decisions" but insisted that 60% of the burden of extra taxes would fall upon the top 5% of earners.
Unions have attacked the public sector pay cap, saying low-paid workers are being penalised for a recession not of their making and warning of "problems" ahead. The NI increase - which will raise about £3bn a year - has angered the business community, which says it is a tax on jobs when the focus should be on economic recovery, and unions, who say there could be "problems" if it goes ahead.
Unison leader Dave Prentis said: "We know the extent of the problem but we believe that it's got to be tackled in a fair way, and not in a way that says: 'People who pay tax every week, people who we can get our hands on, they will pay.'Unison leader Dave Prentis said: "We know the extent of the problem but we believe that it's got to be tackled in a fair way, and not in a way that says: 'People who pay tax every week, people who we can get our hands on, they will pay.'
"It's the poorer public service workers that pay the price.""It's the poorer public service workers that pay the price."
Bonuses call Halving the deficit
Treasury minister Stephen Timms denied the tax rises and spending cuts outlined were a "drop in the ocean" compared to what was needed. Labour forecasts for future economic growth - which will influence the amount it has to borrow and how quickly the deficit is cut - have been questioned after the chancellor was forced to revise earlier figures.
"These are large numbers. They will deliver for us this halving of the deficit which is absolutely essential over the next four years," he told the BBC.
Mr Timms said he was confident the economy would return to growth by the turn of the year.
It really is holding off the pain until later Robert ChoteInstitute for Fiscal Studies
However, Labour forecasts for future economic growth - which will influence the amount it has to borrow and how quickly the deficit is cut - have been questioned after the chancellor was forced to revise earlier figures.
In his statement, he said the economy was likely to contract 4.75% this year - far worse than the 3.5% decline predicted in April - while borrowing would be £3bn higher than earlier estimated.In his statement, he said the economy was likely to contract 4.75% this year - far worse than the 3.5% decline predicted in April - while borrowing would be £3bn higher than earlier estimated.
But Treasury minister Stephen Timms denied the tax rises and spending cuts outlined were a "drop in the ocean" compared to what was needed.
Mr Timms said he was confident the economy would return to growth by the turn of the year.
Mr Darling also unveiled a one-off tax on bank bonuses over £25,000, to be paid by the firms rather than individuals, which he said would raise £550m.Mr Darling also unveiled a one-off tax on bank bonuses over £25,000, to be paid by the firms rather than individuals, which he said would raise £550m.
Writing in the Wall Street Journal on Thursday, Prime Minister Gordon Brown and French President Nicolas Sarkozy propose a global one-off tax on the bonuses.Writing in the Wall Street Journal on Thursday, Prime Minister Gordon Brown and French President Nicolas Sarkozy propose a global one-off tax on the bonuses.
The article, calling for a global change in financial markets' operation, argues that bonuses this year are partly the result of governments' support for the banking system.The article, calling for a global change in financial markets' operation, argues that bonuses this year are partly the result of governments' support for the banking system.
Services 'protected'
The Conservatives, who will launch a new advertising campaign on Thursday warning of Labour's "debt crisis", said projected borrowing of £789bn over the next six years was unsustainable.The Conservatives, who will launch a new advertising campaign on Thursday warning of Labour's "debt crisis", said projected borrowing of £789bn over the next six years was unsustainable.
Mnisters had failed to lay out a credible plan for how they would pay this back, they added, "cynically" ducking tough choices until after the election - which must be held by June 2010. Ministers had failed to lay out a credible plan for how they would pay this back, they added, "cynically" ducking tough choices until after the election - which must be held by June 2010.
"They have not included anything of significance they are going to do," said shadow Treasury minister Philip Hammond. "They had an opportunity to do it and they have blown it.""They have not included anything of significance they are going to do," said shadow Treasury minister Philip Hammond. "They had an opportunity to do it and they have blown it."
'Gesture politics'
Labour insist that schools, hospitals and the police will be protected from future cuts unlike under Tory proposals which would see the deficit cut faster and further.Labour insist that schools, hospitals and the police will be protected from future cuts unlike under Tory proposals which would see the deficit cut faster and further.
But the Lib Dems said the money raised by tax rises and spending cuts would be used to support spending next year not to reduce the deficit, arguing the plans were "built on sand". The Tories have also accused the government of cynicism over apparent benefit rises.
Mr Darling said that planned 1.5% rises in child and disability benefits would be brought forward to 2010 because the low inflation rate would otherwise have led to the benefits being frozen this year.
But think tank the Institute for Fiscal Studies said pre-Budget documents suggested this would need to be funded by cuts a year later.
The government says extra help is being offered when it is most needed, but the Tories said the public would not be fooled.
Families and disabled people would be disappointed to learn the benefits increases would lead to real-term cuts later, they said.
The Lib Dems said the money raised by tax rises and spending cuts would be used to support spending next year not to reduce the deficit, arguing the plans were "built on sand".
Treasury spokesman Vince Cable branded the tax on bank bonuses "pure gesture politics", saying the measure had "more holes in it that a cheese grater".Treasury spokesman Vince Cable branded the tax on bank bonuses "pure gesture politics", saying the measure had "more holes in it that a cheese grater".
"We were able to identify several obvious ways in which bankers could not pay it - if they convert their bonus into salary, if they defer the bonus, if the payments are made in kind," he said."We were able to identify several obvious ways in which bankers could not pay it - if they convert their bonus into salary, if they defer the bonus, if the payments are made in kind," he said.
"Any half-competent tax accountant can find a way round this.""Any half-competent tax accountant can find a way round this."
'Phoney budget'
Although ministers did not publish spending details for beyond 2011, economists said it was clear the squeeze on public spending would only begin to bite in the medium term.
The Institute for Fiscal Studies said the chancellor's figures implied substantial cuts in many areas, potentially including transport, higher education, science and defence, in the future.
"It really is holding off the pain until later," said its director Robert Chote.
"The all important announcements will come after the election, whoever wins it," added Roger Bootle, economic adviser to accountants Deloitte.
"This has been the phoney pre-Budget report. The markets realise this."