Balls: “Cutting too far and too fast creates a vicious circle”

Ed Balls has called the government’s private sector job creation policy a “total flop” – with the £1 billion ‘National Insurance holiday’ announced by George Osborne in his inaugural budget last June creating just 6,000 jobs in 3,000 firms. The chancellor had said the scheme, which aims to help new business starts-ups, would assist 400,000 new firms outside London, the south east and east England, potentially creating 800,000 new jobs.

The shadow chancellor also attacked Osborne’s deficit reduction plan for creating a “vicious circle” by “cutting too far and too fast”, and called on him to “think again”. Earlier today, Left Foot Forward reported the latest Times/Populus poll findings, which revealed more support for the Darling plan than the government’s.

By 55 per cent to 45 per cent, respondents preferred the statement “we should halve the government deficit by the time of the next election, rather than trying to deal with the problem completely by then” to “even though this means bigger spending cuts over the next four years we must get back to balance before the next election”.

Of the failure of the NI holiday scheme, Balls said today:

“George Osborne hailed this £1 billion policy as the centrepiece of his plan for growth and said it could create 800,000 private sector jobs. But it’s turned out to be a total flop with less than 1 per cent of the 400,000 businesses George Osborne said would benefit taking advantage.

“It’s no wonder the policy has failed given how complicated the scheme is, the government’s failure to promote it and the falling consumer and business confidence the government’s reckless economic policies have led to.

“All George Osborne has delivered in his first year as Chancellor is higher unemployment and an economy which has not grown over the last six months since his spending review. Cutting too far and too fast creates a vicious circle because slower growth and more people out of work claiming benefits means the government will now have to borrow £46 billion more than expected.

“George Osborne’s plan is hurting but all the signs are that it’s not working either. He needs to think again before it’s too late.”

In September, the Impact Assessment of the Regional Employer National Insurance Contributions Holiday for New Businesses (pdf) estimated “around 400,000 employers will claim the relief with regard to around 800,000 employees”, while in his June 2010 budget speech, the chancellor said:

“For the next three years anyone who sets up a new business outside London, the South East and the Eastern region will be exempt from up to £5,000 of employer national insurance payments, for each of their first 10 employees hired. We aim to have the scheme up and running by September, but any qualifying new business set up from today will also receive help.

“And the Treasury estimate that some 400,000 businesses will benefit - ensuring all parts of our country contribute to a more balanced and sustainable economic future.”

However, at the time of the announcement, the scheme was criticised by Robert Chote, who is now the head of the Office for Budget Responsibility (OBR). The then director of the Institute for Fiscal Studies (IFS) said:

“The National Insurance break for start-ups looks complicated, potentially prone to avoidance and oddly targeted.”