UK Accountants Warn NI Increase 'Could Cripple' SMEs

by Caroline Maxwell, Tax-News.com, London

25 March 2002

UK accountancy firm PKF has warned that Chancellor Gordon Brown could cripple SMEs if he decides to introduce increases to national insurance contributions to help fund the ailing NHS in next month's budget.

The accountant announced last week that of the two main options open to the Chancellor, namely an increase in NI contributions or a VAT hike, the latter would be 'painful but effective', while the former risks jeopardising the 'spirit of enterprise' which Mr Brown wants to encourage in the UK.

PKF Tax Partner Sheena Sullivan warned that proposed reductions in corporate tax rates on SMEs would be all but cancelled out by a National Insurance increase, arguing that:

'Raising national insurance hits the employer direct with extra cost. It's a tax on jobs and a disincentive to employ which would hit SMEs - the bread and butter of the UK economy - the hardest.'

Ms Sullivan continued by suggesting that, as the UK has not seen a VAT increase since the early 1990s, raising the rate from 17.5% to 19% would be the most obvious choice in order to raise additional funds, and implementing the changes now would be less painful for businesses. She predicted that such an increase would net the Government an extra £5.5 billion a year

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