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More than 50,000 jobs are at risk in small businesses across the UK from the government’s proposed increase in national insurance to cover health and social care provision, a leading trade group has warned.
The Federation of Small Businesses said that the total annual cost of the rise in national insurance to the sector would be about £5.7bn. It warned that the increase would disproportionately hit small company owners, who were struggling to recover from the Covid-19 crisis.
Bosses and British business groups have told ministers that the policy will undermine the economic recovery, and cause companies to rethink plans to hire and train more people given the extra costs.
The government has proposed a 1.25 percentage point rise in national insurance contributions for employers, employees and the self-employed from next April.
FSB national chair Mike Cherry described the policy as a “regressive jobs tax hike that will put jobs at risk, stifle start-ups and prevent new jobs from being created”.
He warned that, combined with other rising employment costs, “that 50,000 figure could easily end up being a good deal greater”. The FSB is also angry that the government has not published an economic impact assessment of the scheme before the parliamentary vote scheduled for Wednesday evening to agree the increase.
The FSB said the government’s figures suggested that 640,000 small businesses would be protected by an employment allowance, but this was 10.5 per cent of the small business community, not 40 per cent “as was stated at yesterday’s government press briefing”.
The estimate, which has been sent to the Treasury, is drawn from the Institute for Fiscal Studies’ estimates of NICs rates, an international assessment of comparable employment cost increases and the Office for National Statistics’ latest labour market study.
Other business groups have also criticised the plans. Suren Thiru, head of economics at the British Chambers of Commerce, said that the policy “will be a drag anchor on jobs growth at an absolutely crucial time” after firms had built up “huge debt burdens” during the pandemic.
The Institute of Directors also said that the increase came as costs were spiralling higher for many businesses given Brexit-related squeezes on supplies and labour.
Roger Barker, head of policy at the IoD, said that the “tax on business” came at a difficult time when businesses were trying to rebuild from the pandemic.
He called the extra tax on dividends a “kick in the teeth” for company owner directors who often paid themselves through dividends but who had also missed out on Covid-related support during the pandemic.
Stephen Phipson, chief executive of Make UK, which represents the manufacturing industry, described the tax increase as “ill-timed as well as illogical”, given the threat to jobs. He added that ministers needed to “nurture growth, not put an anchor on recovery”.
The FSB’s Cherry also said that the combination of national insurance and dividend taxation rises “will deter those thinking about launching their own enterprise from taking the plunge and spurring our economic recovery”.
He added: “The government often celebrates the existence of 6m small businesses in the UK — the majority of which are sole traders, a group which will be hit especially hard by the NICs rise.”
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