Pressure on Osborne to extend ‘flawed’ job creation scheme

The Federation of Small Businesses (FSB) has written to George Osborne asking him to use his Budget speech later this month to extend the existing NI holiday for start-up firms in the regions so that it applies to every micro-business, rather than letting the scheme expire later this year.

The FSB claims that extending the one-year holiday to every small firm in the country would create 45,000 new jobs and add more than £1bn to the UK economy.

Earlier this week the Yorkshire Post revealed that just 22,000 firms have been helped by the regional NI holiday so far – little more than five per cent of the 400,000 predicted by the Treasury when the scheme launched in 2010.

The FSB said the scheme is “flawed”, as the one-year holiday is limited to firms in their first year of operation – a stage when many are unlikely to be taking on extra employees.

Chris Glen, chairman of FSB West Yorkshire said, “The NI holiday scheme for start-up businesses hasn’t worked for one very good reason – start-up businesses usually don’t employ staff until they get fully up and running.

“It’s no wonder that just 22,000 businesses have benefitted so far.

“Our question is, why limit the scheme to start-up businesses, when there are existing small businesses who could create additional jobs by making savings on their National Insurance contributions?”

The NI holiday was launched in September 2010 as a way to boost growth in the regions, with the scheme targeted specifically at start-up firms outside of London and the South East.

The scheme was designed to last for three years, meaning it will expire this September unless the Chancellor takes steps to extend or modify it in his Budget on March 20.

The FSB claims its own research has found that if the NI holiday was opened up to every firm across the UK with fewer than 10 employees for a two-year period it would help to create 45,000 new jobs and add £1.3bn to the nation’s gross domestic product.

Mr Glen said: “Since January, our members have been reporting how busy their businesses are, with some seeing more trade during the last two months than they saw in the whole of 2012.

“The costs of running a business rose significantly in spite of the downturn, so taxation, whether it’s National Insurance contributions or business rates, can be very restricting for small businesses who want to grow their business and increase their workforce.

“A taxation holiday for small businesses would embed the growth we are seeing in the private sector as well as reduce unemployment.

“Reducing tax for businesses would be a win-win situation for economic growth and the welfare bill.”

The Treasury is refusing to comment on any possible headline changes to economic policy ahead of the Budget in 11 days’ time.

But Ministers have previously resisted calls from Labour to extend the NI holiday to all micro-businesses, despite admitting that the disappointing take-up of the scheme means much of the funding set aside for it in 2010 remains unspent.

Last November, Treasury Minister David Gauke told Opposition MPs in a written answer: “Because the NI holiday is a relief, lower than anticipated take-up will be reflected in total NI receipts and the overall position of the public finances.”

Mr Gauke said then that the Treasury was unable to predict the likely cost of extending an NI holiday to all small firms due to “data limitations”.

But he added: “The Government have considered the case for extending the NI holiday to all existing micro-businesses, but believe the best use of public funds at this time is to keep the holiday as a targeted scheme for those areas in most need of employment support.”

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