National insurance holiday for small firms will not drive economic recovery

The newly launched national insurance contributions (NICs) holiday for small firms will not lead to widespread private sector job creation without further support from the Government, experts have warned.

Under the scheme, which was launched this week, businesses setting up outside of London, the South-East and the East of England are eligible for a holiday of up to £5,000 for the first 10 employees they take on in the first year of business.

After the NIC holiday scheme was announced in June’s emergency Budget, Treasury minister David Gauke said it will provide “a valuable boost to start up businesses and help foster the private sector led recovery that will drive growth in the UK over the coming years”.

But the Forum of Private Business (FPB) said that, while it was a welcome step, further tax breaks will be needed if small businesses are to be the catalyst for sustained economic recovery.

“For years small business taxation has steadily increased, so this reduction in national insurance for some firms has to be welcomed,” said FPB chief executive Phil Orford. “However, if the Government is serious about creating conditions for real economic recovery based on strong small business growth, it needs to introduce even bolder tax policies.”

“Given the significant threats to cash flow and business growth from issues such as a lack of bank finance and increasing late payments, recruitment is likely to be slow during the first 12 months for many new firms,” he added. “The scheme should be available for a longer period than just the first year they are in business.”

The comments were echoed by Phil Handley, operations director at recruitment firm IntaPeople. “We’re not convinced that it goes far enough,” he said. “Given the uncertain economic climate and a prevailing fear that there may yet be more rises to come, a one-year national insurance holiday is perhaps not as attractive as it first seems.

“More needs to be done to nurture business growth in the long term if the private sector is really expected to pick up the fallout from the public sector.”

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