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Scrap Employers’ NIC

Think tank recommends ending NIC's to create jobs

This Monday, the Adam Smith Institute (ASI), published a briefing paper titled, 'Unburdening Enterprise:  Reducing regulation for small and medium businesses', in which it advocates scrapping Employers’ NICs to enable the creation of at least half a million jobs.

National Insurance however is the third most important source of government revenue after income tax and VAT as it raises £54 billion for the Treasury. The ASI's report suggests that this could be replaced with much sounder, privately offered insurance and unemployment packages funded by people themselves.

SME's in the Private Sector

The report states that SME's are an integral part of the private sector, making up 99% of all private sector enterprises and 59.1% of private sector employment. Any recovery of the UK economy depends on SME's to create jobs and replace public sector spending. Current regulatory and tax conditions however will not allow them to flourish.

The main focus of the report was to identify the most cumbersome and harmful regulations, taxes and other barriers to growth and to offer possible solutions to relieve SME's of such burdens.

Surveys conducted by the British Chamber of Commerce (BCC), the Federation of Small Businesses (FSB), the Taxpayers Alliance and the Institute for Family Businesses (IFB) identified the following concerns:

  • National Insurance Contributions are too high (particularly to micro businesses);
  • Cash flow problems, illiquidity and late payments (access to finance);
  • Regulatory obstacles to hiring people (health and safety, compliance costs, etc.);
  • Cost of external experts to comply with regulatory standards;
  • Fear of Employment Tribunal claims and consequent labour market inflexibility; and
  • Low confidence, few incentives to invest into new production (fear of recession).

Incentive for Businesses

According to the ASI, cutting costs creates an incentive for businesses to use their resources more efficiently and to transfer them into more production or more hiring. Furthermore, decreasing costs for businesses is a much more prudent, cheaper and efficient policy than a subsidy or a fiscal stimulus because it creates economically better incentives for businesses.

The reports main proposals include:

  • Abolish employers’ National Insurance contributions. This proposal has a potential of creating a minimum of 500,000 jobs by relaxing the tax burden on employment.
  • Reverse the 5.6% increase in business rates from April 2012 to free up funds for businesses.
  • Substantially reduce costs for the SME's by removing all unnecessary administrational burdens. The government should continue with its deregulatory agenda demanding higher efficiency from all departments.
  • Simplify the regulatory system for SME's in order to remove the necessity of hiring lawyers and accountants to help them comply with regulatory standards. Simplification should benefit all UK SME's.
  • Put a stop to all new regulation coming in from EU that targets SME's. This will save them a total of £100bn per year (£23,000 per business) – enough to hire an additional employee or invest into new capital creation and production.
  • Make it easier for employers to fire employees for misconduct. This will make it more attractive for employers to hire, and will increase labour market flexibility.
  • Encourage businesses to take more temporary, zero-hour and fixed term employees. Introduce the option of self-employment for SME's. It saves money, increases job creation and channels resources into profit-making opportunities.
  • Remove the minimum wage to create youth jobs.
  • Encourage private sector solutions to help businesses chase late payments and increase their availability to credit.

By Qdos Contractor

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5 thoughts on “Scrap Employers’ NIC”

  1. Brendan OBrien

    Why am I not surprised that the far right Adam Smith Institute should lobby on behalf of insurance companies that are eager to foist dodgy private insurance plans on working people? I think we have had enough insurance scams already (income protection schemes, endowment mortgage plans, rapacious pension schemes, to name a few) and we don’t want any more.

  2. Peter

    Not going to happen though, is it.

    National Insurance is a tax by another name, and does not go into a ring-fenced insurance fund, so Treasury are not going to let go of that nice little earner for the general budget.

    It will get put into the same bucket as Flat Rate Tax – a great thing for politicians and policy forums to talk about, score points off each other with, and make grandiose statements of intent, but never actually get round to implementing even though it would be hugely beneficial for individuals, the economy as a whole and overall tax receipts.

    Government tax policy can be summed up as “why change what isn’t working!”

  3. Chris Jenkins

    Getting the balance right between protecting the employee and unburdening the SME is difficult, but everyone has got to start asking themselves “what would I want if I was running a business?” because it is only from this particular sector that major growth and new opportunities will come. I’d also roll Employee NIC into Income Tax to cut down the administration, after all it all goes into a central government pot in the end. Start making changes for the future and lets remove short term political re-election policies from the agenda.

  4. Andy

    Not sure where the point about insurance is relevant here. As Peter has already pointed out, NI is just another element of tax on employers and employees – it has no bearing on the Government’s obligations to pay pensions, benefits etc. which are paid out of overall revenues.
    Surely the time has come for politicians to bite the bullet, abolish NI and merge it with income and corporation tax. The country desperately needs a simpler tax regime.
    And while I’m having my say, why not raise the thresholds on which tax is paid – anyone earning less than say £15-20k pa shouldn’t be paying tax and probably has to be supported by benefits anyway, so why not let them keep more of their income and not pay benefits?
    There are many reasons why these changes haven’t happened already and probably won’t happen in the near future, but they are political, not economic.

  5. Chris

    Strange view from Brendan Obrien. The problems he describes are about the mis-SELLING of the products, not the products themselves.
    PPI was sold by bank staff who should have understood that the people tyhey were selling it to to (such as the self-employed) could never claim on the policy, the insurer is not responsible for that.
    The fact is that the NHS is just about the worst health service in the first world and the most expensive – it isn’t something that we should be precious about at all. Politicians are cornered into supporting it because public opinion is such that it is political suicide to do otherwise, but… as with so many other issues, the public are misinformed and are just plain wrong.

    Australia, for example, have a far better health system and they only charge 1.5% levy on salary to fund it.

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