National Insurance Contributions Bill

MEMORANDUM SUBMITTED BY HAMPSHIRE CHAMBER OF COMMERCE (NI 05)

TO THE NATIONAL INSURANCE CONTRIBUTIONS BILL COMMITTEE

ORAL EVIDENCE SESSION – 2.30 pm THURSDAY 2 DECEMBER 2010

This Evidence is submitted by email to the Committee because weather conditions prevent travel from Southampton to London in time for the oral evidence session on 2 December 2010.

1. Hampshire Chamber of Commerce is the Independent Voice of some 2,000 Local Business across the county and brings together the combined influence, strength and expertise of the county’s three former major Chambers of Commerce. This substantial business network engages businesses of all sizes and in all sectors whether throughout Hampshire, or in more focussed groupings, as and when required for areas like South Hampshire, the New Forest, North or East Hampshire. In this way it is very suited to support the business engagement of the new Solent Enterprise Partnership.

2. Chamber business members on its Tax Finance and Legal Committee make a submission to the Chancellor for the Budget each year. In 2009 one of the recommendations in the Hampshire Chamber Budget submission concerned Small to Medium Enterprises (SME) and National Insurance. The committee wished to rebalance the cost of employing people which is much greater for small businesses that are the lifeblood of our economy by allowing them a reduction in National Insurance costs. At the same time we proposed introducing a National Insurance subsidy linked to a new employee’s cost for the first twelve months of that person’s employment.

3. In 2010 the Hampshire Chamber Budget submission, whilst recognising the Government’s need to raise revenue to meet the extreme budget conditions, expressed the view that Government should not to impose excessive burdens that discourage employment and recommended a freeze for the foreseeable future on National Insurance increases.

4. The current National Insurance Contributions Bill makes provision for two measures:

· An increase in the rates of National Insurance contributions paid by employees, employers and the self-employed by 1 % from 6 April 2011.

· A regional employer National Insurance contributions holiday for new businesses – which was launched on 6 September.

National Insurance rates increase

5. Hampshire Chamber of Commerce’s view on NI rates increases has since been reinforced because of the impending VAT increases and the cost to business of implementing the new NEST pensions.

National Insurance holiday on a regional basis

6. Hampshire Chamber of Commerce would like to offer the following observations:

6.1 Statistics show that many new businesses do not continue beyond the second or third year, so a NIC holiday of at least two years, or even three, would ensure the new business was well and truly established. Otherwise the cost of the NIC holiday to the government will be wasted on new businesses that do not endure.

6.2 Most new businesses are set up with just one, two or three employees paying NIC and it is not until the second year or even third year that more employees are taken on. It is at this point that a business becomes the most vulnerable and when the greatest benefit could be gained from the NIC holiday, rather than in the first 12 months.

6.3 We understand that the targeting of the NIC holiday to new businesses outside London, South East and East of England is in order to rebalance the economy in the northern regions so it is less dependent on the public sector. This will only work if the new businesses in the private sector that benefit from the NIC holiday are supplying the private sector and are not reliant on contracts with the public sector.

6.4 The real economic benefit of targeting the NIC holiday could be gained by targeting all the Local Enterprise Partnership (LEP) areas, instead of or as well as the Midlands and the North. The LEPs have been conceived to be "functioning economic areas" so encouraging the growth of new businesses in these areas would result from greater economic benefit to the nation as a whole.

6.5 The rate of creation of new businesses per head of population could also indicate urban areas in need of, and worthy of, encouragement, where the NIC holiday could help economic recovery. Southampton is one such urban area because besides being a deprived area, it also has a lower new business creation rate than comparator areas like nearby Portsmouth, or Bristol, or Brighton and Hove.

December 2010