FSB calls for action to stop tax hikes hammering small firms, and hampering levelling-up

Urgent action is needed to avoid a major hit to the UK government’s levelling-up plans from tax hikes, according to a business lobby group.

The Federation of Small Businesses (FSB) believes planned increases in National Insurance Contributions (NICs) and dividend taxation taking effect on April 6 will hurt areas earmarked for investment to support disadvantaged parts of the UK.

The organisation has found that the planned 1.25 percentage point increase in employer NICs will add more than £3,000 to the annual tax bill of the average SME employer.

Small firms are facing a raft of financial pressures that will be compounded by tax increases next month. Picture: AFP via Getty Images.

It added that increases to the National Living Wage (NLW) and the ending of Covid business support measures will compound financial problems for small firms already facing double-digit increases in costs, with soaring energy bills.

The FSB is recommending an increase to the Employment Allowance, which entitles small firms to a discount on their NICs bills, to £5,000 to free up funds for investment and expansion. The group estimates that the intervention would cost less than £500 million, or under 3 per cent, of the forecast tax take from the combined hikes.

FSB national chair Mike Cherry said: “The [UK] government’s levelling-up plans are now at serious risk. The chilling impact of National Insurance hikes will hit the pay of those in regions that need help the most.

“Slamming small firms with a jobs tax hike will put the brakes on investment, upskilling and growth within communities most affected by the pandemic. Once we reach April, we’ll be faced with rising taxes, an end to business support measures and mounting inflationary pressure. The clock is ticking.”

Mr Cherry also said the business community shrank in size by 400,000 in the first year of the pandemic. "Unless the [UK] government changes course, history is set to repeat itself,” he warned. On April 1, the National Living Wage will increase to £9.50 for those over the age of 23.

Last month, the Office for National Statistics revealed that the growth rate of input prices paid by businesses producing goods has topped 13 per cent.

Furthermore, Scottish Engineering’s latest update warned of continuing pressure on a range of costs, reflected in the "stubbornly high impact on export and UK pricing".

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