The Forum of private Business is welcoming the new Liberal Democrat and Conservative coalition government’s decision to scrap the planned 1% hike in employers’ national insurance (NI) for many staff members, a policy that had been met with strong opposition from business groups.
The ‘tax on jobs’ had been scheduled to take place in 2011 – when many analysts anticipate small businesses will be seeking to recruit in earnest in order to meet renewed demand.
Although the 1% employers’ NI rise remains for staff earning more than £20,800, the threshold at which they begin paying NI on employees earning up to that figure will increase by £21 per week – meaning most will be spared a major tax increase in return for retaining staff and taking on new employees.
"Small businesses did not want this tax on jobs because clearly it would have been a major barrier to staff retention and job creation and would have hindered economic recovery," said the Forum’s Chief Executive Phil Orford. "For the majority of employers it would have proved to be an unpopular and unworkable tax rise. Although not perfect, the new coalition government’s policy on NI is far better and provides a degree of certainty for business growth now and in the future."
According to the latest Economy Watch member panel survey carried out by the Forum 43% of small businesses selected the cost of employment as the joint biggest barrier to recruitment along with economic conditions and the ‘local business climate’.
The interim results of the Forum’s quarterly Referendum survey, which is published on Thursday 19 May, show that 60.8% of respondents believe the new government should prioritise ‘tax simplification’ while 45.9% selected ‘reducing barriers to employment’ and 38.5% ‘a fairer distribution of the tax burden’.
In a statement released today coinciding with the new administration’s first ever joint press conference, in which the Conservative Party’s David Cameron promised a "new politics" of "reassurance and stability", the Government confirmed its plans to increase employers’ NI threshold.
The move was originally drawn up by the Conservative’s following the backlash over the previous administration’s plan to increase NI for both employees and employers by 1%.
In addition, the party planned to increase the threshold for employees’ NI contributions. However, following today’s announcement employees will continue to pay 1% more in NI.
Instead, the money that would have been used to fund the Conservative’s proposed employee NI threshold increases will be used to help lower and middle income earners in the form of a rise in income tax personal allowances from April 2011.