June 2010 was a grim moment for the UK economy.
It was heading towards recession and George Osborne was under relentless pressure to do more for small businesses, which were struggling to keep afloat and receiving little support from parsimonious banks. No amount of stern talking to by the Government had had much impact on bank lending levels and so Mr Osborne turned to something he could control: the tax regime.
It was announced during the emergency budget that month that the Government would oversee a National Insurance holiday for start-up businesses. Under the scheme, new companies could apply for a deduction of £5000 per staff member in employer National Insurance Contributions (NICs) for the first 10 employees they took on during the three years the scheme would operate.
Mr Osborne said the plan had been devised to help create new businesses. It would apply in those nations and regions of the UK that were particularly reliant on the public sector for employment, which meant everywhere besides London, the south-east and eastern England. The Treasury estimated 400,000 businesses would benefit, "ensuring all parts of our country contribute to a more balanced and sustainable economic future".
It is now clear it had no such effect. Today The Herald reveals the now-ended scheme actually benefited only 26,050 businesses UK-wide, 6.5% of the projected total, while, in Scotland, 3900 businesses took up the offer, instead of the anticipated 30,000 to 40,000.
How grandiose the Chancellor's claims appear now. How did the Treasury get it so badly wrong? Was the scheme poorly publicised? Was the application process seen as too cumbersome? Possibly, but an equally likely explanation is that start-up businesses do not tend to take on employees in their early days and especially amid a downturn (the scheme operated during the double dip recession).
Often the founder of a start-up will pay him or herself next to nothing for many months, until there is enough money coming in to comfortably pay wage bills and meet loan repayments. This is why business leaders argued at the time that Mr Osborne should offer support to small businesses in general, taking in established companies that were in a stronger position to take on staff. The employer NICs holiday might have benefited high-end financial IT firms with wealthy clients unperturbed by the recession, but it would have had limited relevance to two friends running a cafe, unable to make enough to pay someone else even if they wanted to.
The Chancellor has belatedly heeded calls to help businesses with NICs payments, announcing in this year's Budget that all firms would be offered £2000 NICs relief from next April. The NICs holidays for start-ups, which offered businesses so much more than that, turned out to be a missed opportunity.
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