Small businesses condemn National Insurance rises

Small business groups have expressed concerns about Gordon Brown’s plans to increase National Insurance Contributions (NICs) outlined by the Chancellor in the Budget.

This will see NICs rise by 1% on all earnings above £89 per week from next April. The increases also apply to employer and self-employed NIC schedules and rates.

Director General of the British Chambers of Commerce David Lennan said the jump in NICs “makes a mockery of the distinction between our tax and national insurance.” He advocated a merger of the two systems, “saving our small businesses billions of pounds a year.”

Furthermore, Lennan points out that “Employers do not draw on the National Health Service and should not be asked to pay for its improvements.” While welcoming the reduction in the small businesses corporation tax rate to 19% and the abolition of the 10% rate, he believes they “will not compensate” for the increase in NICs. Overall he said that the Budget had “reached a plateau in driving business competitiveness and prospects forward.”

The Forum of Private Businesses called the NICs increase a “sickener,” costing an estimated £2 billion for small businesses and discouraging job creation. The group has calculated that a firm employing 10 people will pay an extra £2,361 a year in NICs. A poll of its members showed two-thirds saying it was not a good budget for business.

Further condemnation for the NICs hike came from the Federation of Small Businesses, which called it “a direct rise in business costs” in general and “a tragedy” for the self-employed, who the organisation believes have got the thin end of the wedge in this Budget. The Federation points out the “average income from self-employment is just £13,890” compared to £21,842 from employment.

However, some of the Chancellor’s measures were applauded. The British Chambers of Commerce pointed out the lowering of the capital gains tax rate and several organisations praised the changes to the VAT system.

The poll carried out by the Forum of Private Business gave strong backing to the introduction of automatic VAT relief on bad debts and the abolition of automatic fines for late VAT payments.

Whilst the Federation of Small Businesses think the new flat rate scheme for VAT would “give real benefits to small businesses,” the British Chambers reckon that “the flat rates being suggested are not sufficiently generous to encourage widespread take-up.”

The Federation also welcomed the lower levels of corporation tax as a help to incorporated small businesses and “fledgling companies,” but the group raised concerns for the two-thirds of small businesses that are unincorporated.

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National Insurance