Budget 2013: National Insurance cut 'to boost jobs'

The chancellor announces corporation tax will be cut by 1% to 20% from April 2015

Companies in the UK are to get up to £2,000 off their National Insurance Contributions (NIC) in an attempt to boost job creation, the chancellor has announced.

Aimed at small firms, George Osborne said that when the change starts next April, "one third of all employers" will not have to make any NI payments.

He described it as "the largest tax cut in the Budget".

NI payments go towards a number of benefits, including the state pension.

The change is being called the Employment Allowance, which the chancellor described as "taking a tax off jobs".

Tax cut

To take advance of the allowance, firms will simply have to inform HM Revenue & Customs, and the Treasury says it will be "delivered through standard payroll software".

Analysis

For employers, NICs are a heavy levy, charged at 13.8% of most pay. They amount to a hidden cost of employment.

At a stroke, this new relief, called the National Insurance Employment Allowance, removes the "jobs tax" on millions of small businesses, and is likely to encourage one-man businesses to take on their first employee.

Hopefully it will provide a welcome spur to real employment.

The relief is particularly beneficial for those over state pension age, as they are also not required to pay employee NICs.

This Budget may thus give a welcome boost to the job prospects of elderly people seeking work after retirement, and encourage this sector of the population to remain in employment.

Mr Osborne added: "For the person who's set up their own business, and is thinking about taking on their first employee - a huge barrier will be removed."

"They can hire someone on £22,000, or four people on the minimum wage, and pay no jobs tax."

The Federation of Small Businesses welcomed the announcement, saying the cut went "beyond what we were asking for".

"The chancellor has pulled out all the stops with a wide-ranging package of measures to support small business," FSB national chairman John Walker said.

The Employment Allowance will also apply to charities and community sports clubs.

John Longworth, director general of the British Chambers of Commerce (BCC), also welcomed the announcement.

He said: "The chancellor's move to help our smallest companies take on staff by cutting their employers' national insurance bills by £2,000 will give many businesses an important boost of confidence."

The chancellor also announced that he was reducing the amount of corporation tax that businesses have to pay from 21% to 20% from April 2015. The current main rate of corporation tax in the UK is 23%, which was already due to fall to 21% next year.

"Britain will have a 20% rate of corporation tax - the lowest business tax of any major economy in the world," said Mr Osborne.

Start Quote

We are now actively considering with the Bank of England whether there are potential extensions to the successful Funding for Lending scheme that will boost lending still further”

End Quote George Osborne
Bank lending

The chancellor also announced in his Budget speech that the Treasury is looking to extend the Funding for Lending programme, which aims to increase bank lending to both firms and homes.

The scheme, a joint initiative between the Treasury and Bank of England, is currently set to run from August 2012 to January 2014, with the target of lending roughly £60bn.

In simple terms, it works through the Bank of England lending money cheaply to commercial banks, so that the banks can then pass this on in the form of cheap loans to households and companies.

However, the announcement that the Treasury would like to extend Funding for Lending follows after the scheme has been criticised in recent weeks.

Official figures from the Bank of England itself showed earlier this month that overall bank lending fell in the last three months of 2012, despite the scheme.

This prompted Business Secretary Vince Cable to say it might need to be "adapted", while the Bank of England said the scheme had been slow to take off because the commercial banks had to scrutinise and approve the loan applications.

Budget documents

Budget 2013 graphic

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The British Bankers' Association, which represents the commercial banks, responded that the fall in lending was due to continuing weak demand.

Meanwhile, other organisations have accused Funding for Lending of reducing the interest rates available on savings accounts, as the access to cheap funds means the banks have less need to attract deposits.

The chancellor also said in his Budget speech that he was moving ahead with launching a business bank.

The planned business bank was first announced by Mr Cable last September, but the details have still to be released.

The chancellor said: "We are now actively considering with the Bank of England whether there are potential extensions to the successful Funding for Lending scheme that will boost lending still further.

"And we are also setting out our plans for lending from our new Business Bank."

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