Good news on NI - as unemployment soars again

With unemployment up again, employers will be relieved the new Government is scrapping the NI hike...

Last Updated: 31 Aug 2010

The latest rise in unemployment figures, announced yesterday, may have been a timely reminder of the massive problems facing the new Government. But as Dave & Nick look to the private sector to pick up the slack as they take the axe to the public sector, there was at least one bit of good news for employers. One of the coalition’s first moves will be to scrap the proposed hike to employers’ national insurance contributions – the so-called ‘tax on jobs’ that has proved so unpopular with businesses. Although since they’ve decided not to reverse the employees’ NI hike, there’s still going to be an extra ‘tax on work’...

The 1% rise in NICs, which was due to come into effect next April, caused a storm when it was proposed by then-Chancellor Alistair Darling during the Budget. The Tories said this ‘tax on jobs’ would discourage employers from taking on new staff – a view supported by a number of high-profile business leaders – and promised to scrap the hike if they got into power. However, the deal with the Lib Dems means they’ve had to compromise slightly; although they’re reversing the hike for employers, the employees’ hike has been retained to help pay for the plan to raise the income tax threshold to £10,000.

Tax hikes are inevitable in the coming years. But if we want businesses to start recruiting again – the only way we’re going to get more people into work – hiking employers’ NI was always a daft idea. FPB chief exec Phil Orford said the tax would have been a ‘major barrier to staff retention and job creation’, while A Suit That Fits founder David Hathiramani told MT that it would have put him off recruiting new employees. 'We can cope with the current level of NICs, but any harder and we would have had to make serious considerations before we took on anyone new,' he said.

Yesterday the Office for National Statistics said that unemployment rose by 53,000 to 2.51m in the three months to March. That’s the highest level since 1994. And although there was good news for the public purse in that the number of people claiming unemployment benefits dropped by 27,100 to 1.52m (a much sharper fall than expected), this is largely because we’ve seen a rise in the number of ‘economically inactive’ people - including those who have opted for education or training instead of the dole. And remember, that’s before the redundancies that will inevitably accompany public spending cuts. So all in all, it’s a very bad time to be introducing new employment taxes.

In today's bulletin:

VAT top of the agenda as Government prepares to tackle deficit
A billion for broadband as BT back in the black
Sainsbury's celebrates tasty results - but warns on VAT rise
Editor's blog: Sugar's TV freak show
Good news on NI - as unemployment soars again

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