Darling warned against SME cash cow

Posted on 28 Oct 2009 by The Manufacturer

The Chancellor is being petitioned by the Federation of Small Businesses (FSB) not to propose tax hikes for SMEs in his pre-budget report amid fears that such a move will cause deeper unemployment.

In its Pre-Budget Report submission, the FSB pointed to an independent report by the Centre for Economics and Business Research (CEBR) which states that raising taxes could cost UK businesses billions of pounds, leading to hundreds of thousands of job losses.

CEBR’s research and hypothetical test models show tax hikes such as a 1p rise in employer contributed national insurance would entail mass job losses without contributing significantly to public finances. In the aforementioned example CEBR says 57,000 jobs would be lost which would cost the treasury £900m in benefits as well as removing the income taxes they provide.

The FSB is also calling for reduced corporation tax to provide small businesses awith an incentive to take on more staff.

The CEBR report found that if the Government raised the rate of corporation tax from 21 per cent to 26 per cent – the result of equalising the tax rate between big and small business – would cost around 100,000 jobs from the small business sector and reduce economic output by £4.3bn, while reducing the public sector deficit by only £1.6bn over 10 years.

“This research by the CEBR shows that taxing small businesses to help reduce the public sector deficit is a dead-end that will instead cost us dearly in jobs and economic growth,” said John Walker, national policy chairman of the FSB. “The FSB has long been saying that small businesses are the country’s economic drivers and they cannot play their part in pulling the economy out of recession if they are faced with increasing taxes.

“We need to see the Government take on these practical proposals at a time when the country faces such financially testing times.”

The FSB submission proposals also include:

• National Insurance rebate for new jobs in small businesses
• No National Insurance rise until 2011
• No corporation tax increase
• Delay the VAT rise
• A Job Centre reform
• More funding for Regional Development Agencies
• Automatic Business rates relief

Ben Read, Managing Economist at Centre for Economics and Business Research, added: “In short, taxing economically beneficial activity is inconsistent with encouraging a strong recovery, and would damage growth and employment prospects.’’

See fsb.org.uk for full details of the proposals in the organisation’s Pre-Budget report submission.