Plenty to talk about

There's more on the National Insurance hike planned by Labour, and opposed by the Tories. Another 38 or so businessmen have come out supporting the Tories.

There are plenty of reflections possible on this. First, it's an increase in taxation, which is a withdrawal from the circular flow of income. In that respect, it is potentially harmful to the economic recovery since the multiplier will work in reverse. On the other hand, it's hardly a massive increase. Although it appears to go against the general Labour mantra of postpone cutting the deficit, there are plenty of signs now that the economy is picking up - see recent blogs on business confidence.

Businessmen, it seems, are a little put out that Labour have described them as being deceived by the Tories. This is hardly surprising! Luke Johnson has responded by calling the government "economically illiterate", and also remarks in the linked FT article: “I think that’s insulting. Businesses know very well what will encourage them to employ more people.”

Businessmen also know exactly what to say, and what not to say. Of course, NI needn't be a tax on jobs: Firms have the choice of objective. If they are profit maximisers then yes, labour becomes more expensive as an input. Of course, if their objective is to maximise some profit function that includes social welfare as an argument, then the firms may take a hit to profits instead of cutting workers and remain at their previous output levels.

Optimistic of course, but the point is this: Businessmen don't like the NI rise because it will cut their profits, and businessman, as a rule, are greedy. So that's why they are squealing at the moment. And that's what I mean by they know exactly what to say.

Of course, the Tories are promising drastic cuts in government spending if in power. Given the things being protected (education, health), it means that other incentive programs (tax credit, etc) will have to be shelved. I suspect businesses aren't quite thinking through the implications of this.

The fact is, we will all have to feel the effects of the measures to cut the deficit, and there is little reason to protect businessmen at the expense of others, if this is possible...