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.