The message from business is clear: reduce the deficit and scrap the NICs hike

While the political parties continue to squabble over the urgency and severity of spending cuts to bring down the UK’s ballooning budget deficit, British business has sent politicians a clear message.

41% of companies that responded to the British Chambers of Commerce’s (BCC) latest Monthly Business Survey believe that an incoming Government should make reducing the budget deficit its number one priority.

22% of firms said that slashing the red tape burden should be the Government’s top priority, while 13% argued that the focus should be on making the UK’s tax system more competitive.

Businesses also revealed that an increase in National Insurance Contributions would be the most damaging tax rise for the Government to impose on them - just 6% felt that a NICs rise would be the least damaging option, compared to 36% for VAT.

According to the Treasury’s “Tax Ready Reckoner”, raising VAT by just 1% - to 18.5% - would net the Government an extra £4.5 billion in revenue. The 1% increase in NICs, planned for 2011, would provide a similar sum, raising £5.1bn. With these figures in mind, the BCC is arguing that the planned NICs hike should be scrapped, and substituted by a VAT rise coupled with targeted spending cuts.

Commenting, David Frost, Director General of the British Chambers of Commerce, said:

“The message from business is clear. After an election, we have to get a serious grip on the country’s public finances and escalating debt. Cutting the deficit means making tough decisions on spending, like freezing the public sector wage bill and reforming public sector pensions.

“Companies have and will continue to play their part in creating wealth and jobs, generating economic growth and driving recovery, but the right environment needs to be in place.

“Raising a damaging tax on business, like NICs, will be counter-productive. It will mean fewer jobs and less tax revenue in the long-term. While businesses fully understand the need to bring down the UK’s deficit, they are clearly saying that using VAT would be a less damaging way to achieve this.

“So let’s scrap the NICs ‘tax on jobs’ and offset it with a 1% VAT increase. It’s a tough call, but we have to be realistic about repairing the public finances, and promoting recovery.”

Ends

Media Contact:

Sam Turvey
Tel: 020 7654 5813
Email: s.turvey@britishchambers.org.uk

Notes to Editors:

Survey results (412 businesses responded)

Q: Which one of the following do you see as being the number one priority for an incoming Government?

Reduce Deficit – 41.1%
Maintain Public Expenditure – 7.3%
Stimulate Exports – 5.4%
Reduce Unemployment – 11%
Increase Tax Competitiveness – 13%
Reduce Regulatory Burden – 22.2%

Q: Taxes are likely to have to rise to reduce the UK's budget deficit. Which one of the following tax increases would be least damaging to your business?

VAT Increase – 36.2%
NIC Increase – 6.6%
Corporation Tax Increase – 12.5%
Capital Gains Tax Increase – 30.0%
Fuel Duty Increase – 14.7%

Q: There is a 1% rise in Employer National Insurance Contributions planned for April 2011. What is the main tool that your business will use to absorb this rise?

Wage Growth Restraint – 38.1%
Workforce Reduction – 6.5%
Investment Cuts – 5.5%
Limit Staffing Levels – 19.2%
Cut Other Overheads – 20.4%
Other – 10.3%

Q: According to official data, the UK is out of recession. Does it feel as though the recession is over for your business?

Yes – 25.2%
No – 74.8%

Q: With the UK now officially out of recession, how likely do you think it is that the economy will see a double-dip recession?

Very Likely – 20.1%
Likely – 55.1%
Unlikely – 23.8%
Not Likely At All – 1%

1. The 2009 Pre Budget Report gave the following forecasts for the financial year 2009/10:
Public sector current budget: a deficit of £128 billion
Public sector net borrowing excluding financial interventions: £178 billion

2. Substituting the 1% NICs increase with a 1% VAT rise will leave a £600 million shortfall in revenue. The BCC believes this should be made up with targeted spending cuts and a reduction in, or abolition of, a number of the products that currently benefit from reduced or no VAT.

3. Tax Ready Reckoner - http://www.hm-treasury.gov.uk/d/pbr09_taxreadyreckoner.pdf

The British Chambers of Commerce (BCC) is the National Voice of Local Business.
The BCC sits at the heart of a powerful nationwide network of Accredited Chambers of Commerce serving business across the UK, which employ over five million people.