Plans to increase taxes will stymie economic recovery, says FSB

The UK government’s plans to increase taxes in April will hold back the economy’s fragile recovery, according to a leading business body.

The Federation of Small Businesses (FSB) said hikes in National Insurance Contributions (NICs) and dividend tax rates will add to inflationary pressure and lead to firms putting the brakes on hiring, while also discouraging investment.

Its latest quarterly business confidence index shows optimism among small firms fell after the controversial announcement of plans to increase NICs.

The quarterly index now stands at +16.4, down more than two points on its previous reading.

Smaller firms could be hit hard by proposed hikes in National Insurance Contributions (NICs). Picture: ANP/AFP via Getty Images.

Close to two thirds (62 per cent) of the nearly 1,400 small firms surveyed for the study do not expect their business performance to improve over the coming three months.

A third of employers say they would be forced to increase prices due to the tax changes. They also said they will also cut their own pay, recruit less, and scale back investment.

Among company directors – who were excluded from the UK government’s income support programmes during lockdowns – four in ten say the tax changes would inhibit their ability to save for the future, further reducing the already-small share that saves into a pension, whilst also causing them to increase their debt levels.

Four in ten sole traders also say they will have to increase prices, with 6 per cent saying they will shut down their business permanently if the NIC hike goes ahead unchecked.

FSB national chairman Mike Cherry said: “Small businesses right across the UK are hoping this Budget reflects the [UK] government’s aspiration to create a low-tax, high-productivity economy.

“As things stand, its planned hike to NICs – which serve as a job tax – will see firms with even less room to manoeuvre when it comes to investment, recruitment and reskilling, whilst leaving many with no choice but to raise prices. The risk of stagflation is very real, but there is still time to act.”

Mr Cherry also said increasing the Employment Allowance, which reduces NIC liabilities for employers, could make a “real difference” to the prospects of small employers as firms head into an uncertain winter.

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