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UK Bosses Comment On NIC Row

by Jason Gorringe,, London

12 April 2010

The Institute of Directors (IoD) has stepped into the row on Labour's planned national insurance hike that has dominated the first few days of the election campaign in the United Kingdom.

A number of business leaders in the UK have condemned the proposed 1% increase in national insurance contributions (NICs) from April next year, following a pledge by the Conservative party that the policy would be scrapped under a Tory government.

Shadow Chancellor George Osborne announced recently that the NIC 'cut' proposed by the Conservatives would be funded by a GBP6bn reduction in public spending in the next financial year, with the Departments of Health and International Development in the firing line. This is in addition to further cuts in public spending proposed for 2010-11 designed to reduce the deficit.

The national insurance stay would apply to individuals earning under GBP35,000 per year; for those with incomes above that threshold, the current planned 1% rise will continue to apply. However, weekly thresholds would be increased to offset the impact of the tax rise.

For those earning up to GBP35,000 per year, the weekly threshold above which national insurance contributions must be paid would rise by GBP24; the upper earnings threshold would increase by GBP29 per week.

However, the government has argued that business leaders have been deceived by the Conservative proposals to fund their NIC move by reducing waste, and other public spending trims, slamming the proposed Tory "efficiency savings" as "fantasy".

Chancellor Alistair Darling recently argued that the proposal to scrap the planned increase would threaten the fragile economic recovery currently underway, and Energy and Climate Change Secretary, Ed Milliband has described the Tory proposal as “a tax cut on the never never”.

Commenting on the debate, the Institute of Directors, a non-party political organisation with more than 45,000 members in the United Kingdom and overseas, supported the Tory stance on the planned NIC increase, but condemned them for being "late to the party".

The Institute explained that:

"The IoD and other business organisations have been arguing against the proposed NIC hike since it was first announced in last autumn’s Pre-Budget Report, long before the Conservatives announced their policy. We welcome the fact that the Conservatives have now decided to support a reversal of the hike, but they are ‘late to the party’."

It went on to add that:

"This is a small business issue, not just a big business issue. While the IoD welcomes the fact that many leaders of large corporations are now supporting the reversal, this should not obscure the fact that this is an issue for businesses of all sizes."

The Institute revealed that in a recent survey of 1,800 IoD members conducted in March, 43% said that the rise would discourage them from taking on new staff, and in the same survey of 1,800, 76% thought the rise would be negative for the economy. 80% of the 1,800 are directors of small and medium-sized businesses, it stated.

The IoD suggested that far from taking money out of the economy, a reversal of the NIC hike would leave resources in the hands of businesses which will then be able to use those resources to increase business investment and create new jobs, before going on to argue that:

"The NIC debate is unreal because it avoids the big issue which is excessive public sector spending. Instead of hitting struggling businesses and employees with a tax rise before the recovery is established, the government should be outlining how it plans to achieve spending reductions on a scale big enough to tackle the deficit."

It concluded:

"This is not a choice between tax rises or cuts to frontline public services – of course cutting spending will involve some tough decisions, but we have set out how GBP50 billion a year can be saved without hitting key front line services."

TAGS: small business | economics | business | proprietors | United Kingdom | small and medium-sized enterprises (SME) | social security | micro business

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