Government proposals to reduce national insurance contributions (NICs) for employers don’t go far enough, according to the Federation of Small Businesses (FSB).
While applauding the government’s decision to cancel the 1p increase in employer contributions planned by Labour, the FSB says the coalition’s existing plans won't have the desired effect of boosting employment in the private sector at a time when public-sector redundancies are all but unavoidable.
In a letter to the Chancellor, George Osborne, the FSB has urged the government to also ditch the 1p rise in employee contributions. And Conservatives’ idea for an NICs holiday for a start-up's first 10 employees was inadequate, it added.
In its place the small-business body proposes that the coalition exempts businesses currently employing between zero and four staff from employers' NICs on the next three staff it employs.
The FSB also reminded Osborne that small businesses account for 99.8% of UK enterprises and 84% of new jobs between 2002 and 2007.
The US, the letter points out, would be a useful benchmark in fostering job creation. In the UK the average small business employs only 4.5 people, it explains, compared to in the US, where the average small business employs 6.2 people.
Recalibration
“In short, the engine for job and wealth creation is more powerful in the US than it is in the UK,” it continues. “In the Emergency Budget, and in the coming months and years, the Coalition Government should make it a stated objective to create the conditions in which it is possible for the average business to grow from four employees to six employees. The reward would be the recalibration of our economy, which would be more balanced, more sustainable and ultimately stronger.”
And the best way to encourage businesses to hire is to reduce the NICs burden, insist the FSB.
“The level of employers’ NICs is the single biggest block on job creation and the FSB calculated that the increase planned by the previous government would have cost 57,000 jobs, whilst raising relatively little money for the Treasury,” continues the letter. “If the coalition government is serious about job creation and wants to send a positive message to the business community, it will reverse in full the planned NICs increase and implement a revised version of the Conservatives' plans for an NICs holiday.
“The plan to introduce a NICs holiday for new businesses for the first 10 employees over two years was good in principle. However, in practice it will not deliver the job creation its authors anticipated.
“Instead, the FSB is proposing that a business currently employing between zero and four staff should be exempt from employers NICs on the next three staff it employs. This initiative would only last for one financial year and would drive employment in those businesses currently trading.
“It would also serve as a potent message that the coalition government is serious about job creation, rebalancing the economy and growing the size of the average small business.”
Reward
The FSB says its plans will reward businesses which create jobs and boost output: “We envisage that the relief would apply up to the Upper Earnings Limit of £844 each week per employee, or about £44,000 a year. Three new employees, on an average weekly salary of £489 would save a small business £7,567.86 in one financial year. This is an individual saving per employee of £2,522.62 in one financial year to the business.”
With the emergency budget now a week away, the FSB's letter urged the Treasury to recognise the importance of the private sector as the public sector retrenches: “We strongly believe that the necessary pain of cuts and tax increases must be offset by measures that help those who aspire to grow their businesses and employ more people. The last 10 years were characterised by debt-fuelled public sector growth.
“The next 10 years must be defined by sustainable economic growth based on wealth generation and job creation in the private sector, specifically among the small businesses that make up 99.8% of UK enterprises.”
More than half of SMEs had plans to employ additional employees, says the FSB in the letter, but needed more support from the government if they were to do so. Nevertheless, “employment intentions remain muted. Most businesses are keeping headcount on hold for now and there was a net decline in employment in the three months to March 2010.”
The letter also says that “the majority of small businesses are operating below capacity. In the three months to March 2010, 70% of firms operated below capacity and over half of businesses expect to be below capacity in the next three months.”
Business performance was expected to improve in the third quarter of trading, the letter notes, but the economy would remain “fragile”. Forty percent of businesses, it added, were reporting a decline in revenue.
“We understand that the forthcoming Budget will contain bad news,” the FSB continues, “but this must be tempered by measures that inspire confidence in the future, and delivered in words that speak to the aspirations of the millions of entrepreneurs who want to grow, innovate and employ.”
