Small firms would employ new staff if the Government reduced National Insurance Contributions (NICs), new figures from the Federation of Small Businesses (FSB) confirm.

 

Businesses continue to be stifled by challenges that affected them during the recession, including late payments from other firms and a lack of finance from the banks, which forced many small firms to close. Despite tentative economic growth, many small firms say these issues continue to prevent them from taking on staff. While FSB members have said they are supportive of the Government’s plans to cut the deficit, policies such as cutting NICs have to be at the heart of plans for growth.

The FSB’s ‘Voice of Small Business’ survey, with more than 1,700 respondents, showed that insufficient work and uncertainty over contracts (37 per cent), the state of the economy (33 per cent), cash-flow (31 per cent) and access to finance as well as the cost of credit (16 per cent) are preventing them from employing.

With 2.46 million people out of work, the FSB believes that it is crucial that the Government provides incentives to help small businesses to take on staff and tackle unemployment.

According to the survey, ensuring invoices are paid within 20 days would encourage 17 per cent of small businesses to take on staff.

Most significantly, nearly a third (31 per cent) of respondents said that reducing NICs payments for the first six months of employment would encourage them to take on more staff, and 11 per cent said extending the NICs holiday scheme would be an incentive.

The Government introduced a NICs holiday for start-ups that take on up to 10 employees in 2010, but the FSB believes this does not go far enough. The FSB is urging the Government to extend the NICs holiday to existing firms with up to four members of staff that take on up to three new employees.

The FSB is also calling on the Government to help small businesses employ more apprentices and interns: 29 per cent of respondents said increased support would encourage them to take these on.

“Throughout the recession, we all heard the struggles small firms faced as many had to shut up shop because they were being paid late, and couldn’t access finance from the banks, leaving their cash-flow in a volatile position. While our members have told us the situation has improved slightly, these same issues are now preventing small firms from taking on staff – crucial if the country’s small firms are going to help to secure and promote recovery.

“It is not only imperative that the Government creates an environment for job creation, but that the banks lend to small firms and businesses are paid on time, to give small firms the confidence they need to grow their business and employ.”

The Federation of Small Businesses (FSB) has written to the Chancellor ahead of the Emergency Budget on 22 June, urging the Coalition Government to ‘think small first’.

It has urged the Chancellor to temper any spending cuts and tax rises with measures that will inspire confidence in the future and allow businesses to innovate, grow and employ.

For example, the move to reduce VAT to 15 per cent in 2008 cost the average small business £1,500 in administration alone. The FSB has urged the Government to include a sunset clause which would allow small firms to plan for the eventual reduction and send a strong message that while tax increases are necessary in the current climate, that this Government is a low tax administration.

The FSB also opposes any major increase in the Capital Gains Tax (CGT) for businesses and entrepreneurs as it would stifle long-term investment in small firms. The FSB believes that CGT on business activity should remain at 18 per cent and a generous taper relief be reintroduced to help savers and long-term investors.

A fifth of small firms believe that National Insurance Contributions (NICs) and PAYE taxes are their biggest obstacle to growth. Given this, the FSB argues that while it is important that the Government cuts the deficit, something that over 90 per cent of FSB members agree with, it must not be at the expense of the recovery or mean a hike in taxes for small businesses.

John Walker, national chairman at the FSB, said: “While the FSB does not want to see taxes increased we understand that reducing the budget deficit is a key priority. The Chancellor must use the Budget to set out his pro-business credentials and offer something to stimulate growth. Private sector growth is the best method of cutting the deficit, keeping taxes low and absorbing the staff that will lose jobs in this round of budget cuts.

“It is imperative that any changes to Capital Gains Tax or VAT go hand-in-hand with an ambitious plan for helping economic growth through allowing small firms to employ, grow, invest and innovate.

“Proposals to give new firms a National Insurance holiday do not go far enough and will not help those businesses who have been running for a couple of years and want to expand by taking on staff. By cutting employers NICs payments for established companies that want to take on staff, the Government would benefit from the creation of new jobs and the additional revenue from income tax and employees NICs contributions that would be paid, while freeing up business cash-flow enabling it to grow.

“With the four main high street banks holding 83 per cent of the SME market, there needs to be more competition for credit. This will help drive down the price of credit which we believe is putting businesses off applying for finance.

“We look forward to the Budget on 22 June and hope that the Chancellor uses this opportunity to ‘think small first’.”