NIC rise may mean profits start to slide
Firms large and small are going to be hit by rises in National Insurance contributions next year. The rate will rise by one per cent leading to accusations that it is simply a tax on jobs and creating a major obstacle standing in the path of sustained economic recovery.
The Chancellor has ignored the pleas of business leaders to scrap plans to raise National Insurance Contributions (NIC).
From April next year the rate will rise by one per cent leading to accusations that it is simply a tax on jobs.
And as such it is a major obstacle standing in the path of sustained economic recovery.
But in his Budget speech Chancellor Alistair Darling ducked the issue despite intense lobbying from leading business organisations such as the British Chambers of Commerce, the Confederation of British Industry and the Institute of Directors.
As a result, firms looking to expand and take on more staff will be forced to think twice because the bigger the workforce, the more expensive the additional NICs will be.
Growth will be stunted and the economy will suffer as more firms modify their plans and trim their ambitions for future development.
Andrew Bullard, Head of Business at Cashflow UK, said: “Raising NICs could cause real damage to the UK economy.
Just when employers will be beginning to feel more confident about their prospects and planning expansion, suddenly they will find themselves having to pay for the privilege.
Surely the wealth generated by a growing business, given proper encouragement by the government, would far outweigh the short-term gain from such a crude levy.”
The British Chambers of Commerce suggested that a one per cent rise in VAT would be preferable to pushing up the cost of NICs to employers.
The prospect may seem initially odd at a time when VAT rates have only just returned to 17.5 per cent after being slashed by two per cent when the recession kicked in. But experts believe it will be a less damaging way for the government to raise a similar amount of revenue.
Significantly, VAT does not fall on investment so firms wanting to expand can do so without fear of having to pay through the nose.
And exports are exempt, meaning a significant portion of many firms’ income will remain unaffected, while competitors importing into the UK will be subject to the tax.
Mr Bullard added: “Increasing VAT makes more sense for a growing economy than raising NICs. Hopefully the new government will realise this before it is too late.”
