Brown and Cameron are both misleading voters in their war of words over Labour’s propose National Insurance rise for 2011/2012.

The planned national insurance tax rise applies to both employees and employers. The tax on employees will reduce spending power in the economy with a disproportionate impact on lower paid workers. This is because there is a ceiling on employee national insurance contributions and the increase will make up a bigger portion of lost income for the lower paid. It is a regressive increase which favors the better offer as well as reducing demand for basic goods. For employers this represents an increase in their fixed costs and will discourage investment and lead to job losses.

Labour is proposing these increases to help pay for their ballooning deficit caused by the financial crisis which was much of their making.

There is an alternative to Labour’s tax hike on the poor but it is not what the Tories are proposing.

Instead the Tories are suggesting more public sector cuts as a counter to national insurance increases. Labour is correct this would be damaging for the economy as well as the provision of front line services. A study by Manchester University has shown that over 60% of the jobs created over the last 10 years have come about either directly or indirectly through public spending. Without public spending the UK economy with the private sector so dependent on banking and financial services would have completely collapsed

The alternative to what New Labour and the Tories are proposing would be a real progressive tax on the rich which would together with full control and ownership of the banking system avoid any need to for public sector cuts and allow for a real increase in services