Birmingham business leaders criticise Chancellor over rise in National Insurance contributions

Dec 10 2009 by Jon Griffin, Birmingham Mail

BUSINESS leaders in Birmingham and Solihull have rounded angrily on the Chancellor for adding to industry’s burdens by failing to abolish increases planned in National Insurance contributions.

Alistair Darling told the House of Commons in the Pre Budget Report that he would keep his plan to increase contributions from April 2011 by 0.5 per cent.

But Katie Teasdale, head of policy at Birmingham Chamber of Commerce and Industry (BCI), said: “Our members were very clear in a recent survey that employment costs are the biggest deterrent to hiring new staff.

“Birmingham’s unemployment figure of 12.8 per cent is the highest in the UK and we would have expected a freeze of National Insurance payments to encourage companies to recruit staff.

“The increase will only serve to be a tax on business that will stifle employment opportunities and growth.

“We welcome the measures announced by the Chancellor to tackle youth unemployment and to get mature people back into work but we will need to monitor how this progresses.

“It is vital that Job Centre Plus staff are able to fully implement and update their internal processes to make these proposals work on the ground.

“The real and lasting solution to tackling unemployment is encouraging the private sector to grow – that is why the decision to increase National Insurance contributions will disappoint our members.”

Meanwhile, tax experts at PricewaterhouseCoopers LLP in the Midlands also weighed in over the National Insurance controversy and said the business sector was likely to be disappointed by the PBR.

Barry Smith, head of tax at PWC in the Midlands, said: “Small businesses are likely to be broadly unimpressed by the package of proposals announced, the majority of which merely extend previously implemented measures that haven’t really made a significant positive impact.”

The Chancellor admitted in the PBR that the recession was far deeper than predicted after revealing that the economy would shrink by 4.75 per cent in 2009 compared to his April budget estimate of 3.5 per cent.

But he claimed the economy would start growing by the end of the year and next year would grow by between one per cent and 1.5 per cent.

* Mail guide to what it all means...

TAX

* One-off 50 per cent levy on any banking bonus above £25,000 before April 5, 2010, raising £550 million to get unemployed into work.

* Planned 0.5 per cent increase in National Insurance contributions doubled to one per cent, meaning from 2011/12 employees will pay 12 per cent and employers 13.8 per cent. Starting point for NI to be raised so those earning £20,000 will pay no more than at present.

* Thousands more workers to be brought into 40 per cent income tax band by a one-year freeze on the threshold of around £43,000.

* Plan to increase inheritance tax threshold to £350,000 scrapped for next year. Threshold will be frozen at £325,000 in 2010.

* Temporary 2.5 per cent cut in VAT to end on January 1, with the sales tax returning to 17.5 per cent.

* Planned one per cent increase in small companies’ Corporation Tax deferred for one year, leaving the tax at 21 per cent until 2011/12, when it will increase to 22 per cent.

* Bingo duty cut from 22 per cent to 20 per cent in the spring.

FORECASTS

* Deficit forecast upgraded from £175 billion to £178 billion for this year and £176 billion next year.

* State deficit to be halved over following four years to £82 billion in 2014/15.

* Net debt forecast to reach 56 per cent of GDP this year, 65 per cent next year, 78 per cent by 2014/15.

* UK economy to contract by 4.75 per cent this year and return to growth by the end of this year. Coming year’s growth prediction unchanged at 1-1.5 per cent for 2010.

* Inflation to rise to three per cent next year.

SPENDING

* Basic state pension to rise by 2.5 per cent in April. Other inflation-linked benefits to rise by 1.5 per cent.

* State spending growth to be held to an average 0.8 per cent annually from 2011 to 2015, meaning cuts to some budgets and the scrapping of some programmes.

* Public sector pay bill to be cut by £100 million over three years. New appointments worth £150,000 and bonuses over £50,000 to require Treasury approval.

* Public sector pay rises – outside the armed forces – to be capped at one per cent for two years from 2011.

ENVIRONMENT

* Government to finance four carbon capture and storage projects.

* Extra £200 million for household energy efficiency.

* Scrappage scheme to replace 125,000 home boilers.

* Tax-free payments for power sent to National Grid from home turbines and solar panels.

* Electric cars to be exempt from company car tax for five years.