Simpler, lower taxes not fiddly, complicated NIC schemes

February 08, 2011 11:38 AM

A key policy in George Osborne’s growth strategy has attracted remarkably scant take-up since it was announced in the June Budget. A National Insurance Contributions (NIC) holiday for small new businesses not located in London and the South East exempts start-up firms from NICs for the first 10 staff they hire for 12 months, but the results have been disappointing. So far a grand total of just 10 staff have been taken on nationwide under the scheme. The head of the Office for Budget Responsibility, former Institute for Fiscal Studies director Robert Chote said the scheme may be “a little too complicated”:
“The national insurance break for start-ups looks complicated, potentially prone to avoidance and oddly targeted.”

[caption id="" align="alignright" width="215" caption="Navigating the tax rules"][/caption]

It’s easy to see why the government chose to target the scheme in the way they have. It specifically excludes businesses in London, Eastern and the South East regions, regions which already have lower unemployment and traditionally recover sooner from recessions. Excluding them from benefiting from pro-growth policies fits into the Chancellor’s ambition to ‘rebalance’ the economy so it is less reliant on London and the surrounding regions. And most jobs are created by small and medium sized enterprises. Somewhere among the start-ups being formed now are the big, successful companies of the future. But can we afford to keep ignoring opportunities for growth in the South just because they don't match the Chancellor’s grandiose ideas about ‘rebalancing’ the economy? What’s so special about the first 10 jobs, what’s so different about a firm’s 11th employee? And why are only new firms favoured? Is a 2 year old company trying to expand or struggling to retain its staff so different?

Treasury officials may insist that it’s “too early to tell” if it’s working. But fiddly, complicated schemes like this which only add to the complexity of the tax code with additional rules, eligibility criteria and rates are woefully inadequate for the task of rebuilding Britain’s economy and creating the conditions for growth, prosperity and jobs to drag the country out of the economic malaise. The Chancellor should abandon his ambitions to direct the economy from his Whitehall citadel and content himself with the task of removing the obstacles to growth which government creates. We need a radically simpler tax system with fewer exemptions, fewer special schemes and fewer but lower rates.A key policy in George Osborne’s growth strategy has attracted remarkably scant take-up since it was announced in the June Budget. A National Insurance Contributions (NIC) holiday for small new businesses not located in London and the South East exempts start-up firms from NICs for the first 10 staff they hire for 12 months, but the results have been disappointing. So far a grand total of just 10 staff have been taken on nationwide under the scheme. The head of the Office for Budget Responsibility, former Institute for Fiscal Studies director Robert Chote said the scheme may be “a little too complicated”:
“The national insurance break for start-ups looks complicated, potentially prone to avoidance and oddly targeted.”

[caption id="" align="alignright" width="215" caption="Navigating the tax rules"][/caption]

It’s easy to see why the government chose to target the scheme in the way they have. It specifically excludes businesses in London, Eastern and the South East regions, regions which already have lower unemployment and traditionally recover sooner from recessions. Excluding them from benefiting from pro-growth policies fits into the Chancellor’s ambition to ‘rebalance’ the economy so it is less reliant on London and the surrounding regions. And most jobs are created by small and medium sized enterprises. Somewhere among the start-ups being formed now are the big, successful companies of the future. But can we afford to keep ignoring opportunities for growth in the South just because they don't match the Chancellor’s grandiose ideas about ‘rebalancing’ the economy? What’s so special about the first 10 jobs, what’s so different about a firm’s 11th employee? And why are only new firms favoured? Is a 2 year old company trying to expand or struggling to retain its staff so different?

Treasury officials may insist that it’s “too early to tell” if it’s working. But fiddly, complicated schemes like this which only add to the complexity of the tax code with additional rules, eligibility criteria and rates are woefully inadequate for the task of rebuilding Britain’s economy and creating the conditions for growth, prosperity and jobs to drag the country out of the economic malaise. The Chancellor should abandon his ambitions to direct the economy from his Whitehall citadel and content himself with the task of removing the obstacles to growth which government creates. We need a radically simpler tax system with fewer exemptions, fewer special schemes and fewer but lower rates.

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