London (MNI) – The opposition Conservative Party pledged to
partially reverse a planned Labour tax hike on National Insurance and
restated its determination to use spending cuts, rather than tax
increases, to shoulder the burden of deficit reduction.

The head of the Conservative’s Treasury team, George Osborne, said
at a press conference Monday that his party’s planned deficit reductions
would come from “roughly 80% from spending restraint, 20% from tax
hikes.”

Osborne set out plans to renegotiate a raft of public sector
contracts to offset his plan to reverse the National Insurance tax hike.

The government has set out plans to hike National Insurance by 1%
from April next year. Osborne said he would scrap the tax hike for low
to middle income earners, with higher income earners still paying it.

Asked how much the tax increase would cost, Osborne said the
independent Institute for Fiscal Studies had estimated it at an initial
cost of stg5.6 billion; falling to stg4.3 billion assuming it reduces
wage increases.

The initial estimated cost of the tax reversal amounts to around
0.4% of GDP. As the Conservatives have also pledged to start earlier and
go further than the ruling Labour Party on deficit reduction, this means
they will have to more than offset the projected loss on National
Insurance revenue through other means.

Osborne said he would secure some stg6 billion in efficiency
savings, with the emphasis on renegotiating public sector contracts to
reflect “tougher times.”

Osborne defended his decision on National Insurance saying, “Given
the fragile recovery, is it really a sensible idea to proceed with the
full whack of this tax rise ?”

The acknowledgement of the need not to derail a fragile recovery, a
theme repeatedly used by Labour, adds to the impression of a lack of
difference between the two parties on the pace and scope of fiscal
tightening.

On current Treasury projections, the UK’s Maastricht criteria
deficit will stand at 4.2% of GDP by 2014/15, 1.2 percentage points
above the 3% level recommended for the UK by the European Commission.

–London newsroom: +44 207 862 7499 email: ukeditorial@marketnews.com

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