FROM the moment Boris Johnson opened his mouth last September to announce a hike in national insurance contributions, it looked a whole lot like the Conservatives were hell-bent on delivering another major economic policy error.

The move is, of course, entirely in keeping with Tory mistakes of the past. It involves taking many billions of pounds out of the pockets of those who would have spent it, thus weighing on aggregate demand and hampering economic recovery.

We should not have been surprised by the tax grab, having observed the monumentally ill-judged and savage Tory austerity drive since 2010 and its choking effect on growth. Some Tories had seemed to give the impression they had learned lessons from the failed austerity drive, the chokehold of which on the economy remains in place. However, this supposed change in philosophy always looked entirely unconvincing.

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And, when the national insurance hike for employees and employers was announced last September, it appeared to be confirmed that not a single lesson had been learned from the mistakes since 2010. It was clear the Tories were determined to make the same critical error again – obsessing over the public finances before recovery is secured. And compounding the problem with a regressive tax move which will maximise the dampening impact. It is difficult to escape the notion that the Tories are unable to comprehend that weaker growth reduces overall tax revenues, and has a major negative effect on the public finances.

The national insurance hike due to come into effect next month was dressed up by Mr Johnson as a “health and social care levy” amounting to around £12bn per annum, in a seeming effort to sweeten the pill. However, it has been clear from the outset that it is a huge tax hike, plain and simple. And one which comes at a very difficult time for households and businesses already struggling under the weight of the coronavirus pandemic fall-out. Money for health and social care did not have to come from hiking national insurance.

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Things were already very difficult for households and businesses at the time the Prime Minister unveiled the tax hike last September, a year-and-a-half into the pandemic.

However, they have become even worse since. Inflation has rocketed, with official data providing one dizzying surprise after another. In February, the Bank of England forecast annual UK consumer prices index inflation would peak at a heady 7.25 per cent in April. It was only 0.4% in February last year. And regulator Ofgem last month announced a £693 per year or 54% hike in the energy price cap for a typical dual fuel customer, effective from April 1.

The inflation situation has been exacerbated by the awful Russian invasion of Ukraine, which has sent energy prices even higher.

Annual CPI inflation is now being tipped by the Resolution Foundation to peak at more than 8% this spring. Benchmark UK interest rates have been raised from a record low of 0.1% to 0.75% and are forecast to increase further. The price of petrol has surged to more than 160p a litre. There are fears of a significant further rise in the energy price cap from October, with what happens one way or the other on this front being dictated by the path of wholesale markets in coming months.

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The Bank of England said yesterday, as it revealed its Monetary Policy Committee had voted to raise rates from 0.5% to 0.75%, that “developments since the February report are likely to accentuate both the peak in inflation and the adverse impact on activity by intensifying the squeeze on household incomes”.

In the UK, there has been a sharpened focus in recent weeks on a cost-of-living crisis which has been evident for many months, with annual CPI inflation having topped 5% back in November. By January, it was at 5.5%, its highest in nearly 30 years.

Amid this focus, calls for the Tories to think again about their impending hike in national insurance contributions have been growing louder, with some also urging Mr Johnson and Chancellor Rishi Sunak not to go ahead with the associated looming rise in dividend tax.

So far, and with just days to go until Mr Sunak’s Spring Statement next Wednesday, the Tories have lamentably given no indication at all that they are for turning.

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Speaking on the Go Radio Business Show With Hunter & Haughey on Sunday, Ayrshire entrepreneur Sir Tom Hunter said: “I would say to Rishi Sunak just now cancel the NI (national insurance) [rise] for employers and employees. Cancel it now because that’s another drain coming out of the disposable income. And the UK consumer right now [is] faced with one of the biggest challenges, certainly in my lifetime.”

Federation of Small Businesses national chairman Martin McTague said: “The Chancellor has a choice – plough on with damaging tax hikes, or take steps to protect the most fragile and empower small firms to deliver his ‘culture of enterprise’ vision.”

Tax and advisory firm Blick Rothenberg declared the UK Government “should be deferring the national insurance tax increase – not planning for a tax giveaway in the run-up to the next election”.

Chief executive Nimesh Shah said: “The Government has strongly resisted recent calls to cancel or postpone the NIC [national insurance contributions] increase at the Chancellor’s Spring Statement next week. However, the cost-of-living crisis is here now and working families are fearing the higher tax burden in a month’s time. Despite that the Government has reinforced its desire to push ahead with April’s 1.25 [percentage point] increase.”

He added: “The Government should be seriously considering at least a deferral of the…NIC increase to help working families.”

Mr Shah calculated that “an individual earning £30,000 will be £214 worse off per annum from April; someone earning £50,000 will be over £500 worse off”.

And he noted the “additional NIC burden for employers as businesses grapple with increasing operational costs”.

Mr Shah flagged “widespread reports” that Mr Sunak plans later to cut income tax “as the Government makes its first moves towards the next general election”, declaring this reduction “is likely to be announced at the next Autumn Budget”.

He added: “This is a tactical move by Rishi Sunak and the Government to give something back in [the] run-up to the next general election, which Boris Johnson took away when he announced the health and social care levy last September. However, the reality now is quite stark, and the Government should do what it can to limit the impact of higher living costs.”

Speculation that Mr Sunak has been looking at a cut in income tax closer to the election has indeed been widespread.

However, households and businesses are struggling desperately amid the cost-of-living crisis.

The Tories have a duty to help now, and should prioritise this over their own prospects at the next election by scrapping the impending hike in national insurance and the dividend tax rise. However, they have with their policies in recent years signalled they can ignore the protracted plight of struggling households and businesses alarmingly easily.