Knowledge Centre
28th October 2009
Increasing the tax burden on small firms will lead to higher unemployment, a business group has warned ahead of the Government's pre-Budget report.
The Federation of Small Businesses (FSB) is highlighting an independent report it commissioned, which found that raising taxes on small companies would cost the UK economy billions of pounds and "hundreds of thousands" of jobs.
The group is calling for the Government to freeze payroll taxes and Corporation Tax, in order to incentivise firms to take on extra staff and help prevent small companies that are already struggling from going "over the edge".
Produced by the Centre for Economics and Business Research (CEBR), the report found that raising Corporation Tax from 21% to 26% - equivalent to closing the gap between the rates paid by small and big business - would result in a loss of 100,000 jobs from small firms and reduce their economic output by £4.3 billion. Moreover, such action would only reduce the public deficit by £1.6 billion over 10 years.
And while employers' National Insurance Contributions (NICs) are set to increase by 0.5p in the pound from April 2011, the CEBR tested the effects of an increase of 1p; finding that it would lead to SMEs shedding some 57,000 jobs, leading to a cost in benefits of £900 million.
The call follows a warning yesterday from the Forum for Private Business that the Government should not cut support for small firms in the light of likely public spending reductions.
CEBR managing economist Ben Read said that benefits from increasing small business tax would be "at best minimal", and would discourage firms from investing, innovating and employing new staff.
"In short, taxing economically beneficial activity is inconsistent with encouraging a strong recovery, and would damage growth and employment prospects," he added.
IMAGE Peter Byrne/PA Wire
'Don't increase tax on small firms', FSB says
The Federation of Small Businesses (FSB) is highlighting an independent report it commissioned, which found that raising taxes on small companies would cost the UK economy billions of pounds and "hundreds of thousands" of jobs.
The group is calling for the Government to freeze payroll taxes and Corporation Tax, in order to incentivise firms to take on extra staff and help prevent small companies that are already struggling from going "over the edge".
Produced by the Centre for Economics and Business Research (CEBR), the report found that raising Corporation Tax from 21% to 26% - equivalent to closing the gap between the rates paid by small and big business - would result in a loss of 100,000 jobs from small firms and reduce their economic output by £4.3 billion. Moreover, such action would only reduce the public deficit by £1.6 billion over 10 years.
And while employers' National Insurance Contributions (NICs) are set to increase by 0.5p in the pound from April 2011, the CEBR tested the effects of an increase of 1p; finding that it would lead to SMEs shedding some 57,000 jobs, leading to a cost in benefits of £900 million.
The call follows a warning yesterday from the Forum for Private Business that the Government should not cut support for small firms in the light of likely public spending reductions.
CEBR managing economist Ben Read said that benefits from increasing small business tax would be "at best minimal", and would discourage firms from investing, innovating and employing new staff.
"In short, taxing economically beneficial activity is inconsistent with encouraging a strong recovery, and would damage growth and employment prospects," he added.
IMAGE Peter Byrne/PA Wire
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