The more you look at them, the less the UK Government’s plans for hefty national insurance hikes make sense.
The bottom line for small businesses across the UK is that they’ll need to find another £5.7 billion to hand over to the Treasury every year. And every one of those pounds is one that can’t be spent investing in the business, or hiring staff, or increasing pay, or paying down some of the new debt that firms have taken on during the pandemic, which amounts to £4bn in Scotland alone.
So, it’s an approach that’s going to damage small business investment and employment – an odd choice when we’re looking to these very businesses to do what they do best and trade us back to economic recovery.
Then, when you look a bit closer, you realise how far-reaching the effects will be – especially on smaller firms already battling against fragile turnover, spiralling input prices, supply-chain disruption, a deepening late payment crisis, rent arrears, loan repayments and more.
There is so little breathing space in these businesses that any longer-term plans for expansion through workforce growth will now firmly be on ice. And, if they can’t make the sums add up, this could just be the final straw and cuts will be on the way.
No employer – especially in a small business where staff are like family – wants to say goodbye to a good employee. But analysis last week estimated that these tax rises could see unemployment rise by 50,000 across the UK – thousands of the job losses in Scotland.
The other baffling thing is that the Government itself clearly understands the strain that national insurance contributions (NICs) place on employers. That’s why last year it increased the employment allowance, a form of threshold on employers’ NICs, to £4,000. In the current circumstances, raising this threshold by £1,000 would make more long-term economic sense than a short-term increase in the headline rate.
Neither does this move help us rebuild a stronger, broader economic base through increasing the business start-up rate. We need more people ready to take the plunge and go into business for themselves. It’s a daunting prospect at the best of times and government economic policy should be about making it easier. Instead, alongside the employer and employee NIC rises, we’re going to see a simultaneous hike in dividend tax. Little wonder, then, that the move has been branded anti-small business, anti-jobs, and anti-start-up.
The case for the defence, of course, is that we have serious issues with how vital services like health and social care are organised, funded and delivered – and fixing them will cost serious amounts of money, which will need to come from somewhere. I don’t think any of that is in doubt. All we’re questioning is whether the responsibility for finding this money should fall disproportionately on the shoulders of small businesses, their employees and the self-employed.
With lower pay thresholds for employees compared to, say, income tax and things like the low 2p rate on earnings over £50,000, national insurance isn’t universally regarded as the most progressive tax ever invented.
But, thankfully, the Treasury has many more clubs in its bag.
Indeed, such is the breadth of the UK tax system that few aspects of economic activity escape its reach. So it is definitely possible for us to share this burden across various other forms of wealth, alongside earnings.
There must be a fairer way that does less damage to jobs, investment and employees’ pay packets. A way that doesn’t pile yet more pressure on to small businesses who’ve had a torrid pandemic, who are still by no means out of the woods, and on whom, it bears repeating, the country is relying to restart the economy.
Colin Borland is director of devolved nations for the Federation of Small Businesses
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