Reduce Employer’s National Insurance to Help SMEs

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Whilst the Conservative Party have recently championed investment in infrastructure and are trying to position themselves as the party of business, it is useful to consider that they are doing little on some of the issues small business is crying out for help on.

 

These include childcare provision, widening access to bureaucratic public sector tenders and finally the issue I would like to address: cutting the rate of the Employer National Insurance Contributions (NIC).

Whilst addressing childcare issues is certainly on the Labour agenda there is considerable concern that Labour appears to lack a clear economic narrative which I imagine will be one of the more pressing concerns for Mr Axelrod once he gets his feet under his Labour Desk. So as a businessman who has built up a small agency now employing about forty people, I would hope that Labour will be a Government that delivers for small business and is recognised as having listened to that constituency and addressed its concerns.

After visiting a number of small businesses over the last few weeks with Progress, I am now convinced that one of the strongest measures that Ed Balls could adopt before a General Election would be to for call a reduction in an Employer NIC from its current level of 13.8% to something below 10% over the course of a Government.

My reasoning behind calling for such a cut is that Employer NICs are very much a tax on employment, and in an economy that is seeking to increase employment and grow the economy, it could be considered somewhat misdirected and a disincentive to the delivery of desirable economic outcomes.

Indeed seeing a reduction in employment tax would see more people employed, bringing a corresponding reduction in welfare spending or an increase in the corporation tax yield.This has the potential to ensure that a measure such as cutting Employer NICs would be cost neutral for the Treasury. But moreover, imagine the upside for those eager to get back into work – if we were able to reduce wage bills by a couple of percent businesses have the chance to reinvest these savings in new jobs.

As a business owner myself, when it comes to considering hiring more staff, it is those marginal costs which make the difference. I, like many other business owners, would like to take a chance on hiring more staff and working with them to drive profit. But with employer’s national insurance contributions coming to over £10,000 on a monthly wage bill of over £100k, national insurance is a significant burden to bear and makes employers much less willing to take risks on new staff. That leaves would-be employees to be the responsibility of the state, rather than a net contributor to the economy.

Further, if we believe that reducing Employer NICs would in fact reduce the Treasury tax yield, then a way to pay for this cut would be to see Corporation Tax remain at its current level instead of being reduced, as mooted by the Chancellor during his periods of tax cutting zeal.

I believe that reducing the Employer NICs would also help smaller companies like my own to manage their monthly cash flow. This would reduce the need for expensive overdraft facilities at banks which are a frustrating drain on any company particular as they often go unused.

I also believe that cutting Employers NICs is not just economically justifiable but also politically sensible as well. Labour could then go to the electorate championing a tax cut, which would benefit businesses of all sizes, and demonstrate to the private sector that Labour has listened to their concerns and is reducing their costs.

It must be remembered that the economy in the UK has changed and more and more people are now working as part of the growing SME sector. According to government statistics, small businesses alone make up over 47% of private sector employment, with SMEs employing 14 million people.

Clearly it is is becoming more important than ever for Labour to be communicating with all sectors of the electorate, and not just focusing on the economic issues associated with bigger employers. Reducing an Employers NICs, particularly for small employers, is likely to have a considerable impact with SME.

So go on Labour, be bold and announce some radical steps to help business!

Mark Glover is Chief Executive of Bellenden
REF:http://lfig.org/reduce-employers-national-insurance-to-help-smes/