White Paper on Universal Credit
Written Evidence Submitted by the Federation of Small Businesses
The Federation of Small Businesses (FSB) welcomes the opportunity to respond to the above named consultation.
The FSB is the UK’s leading business organisation. It exists to protect and promote the interests of the self-employed and all those who run their own business. The FSB is non-party political, and with 210,000 members, it is also the largest organisation representing micro and small sized businesses in the UK.
Small businesses make up 99.3 per cent of all businesses in the UK, and make a huge contribution to the UK economy. They contribute 51 per cent of the GDP and employ 58 per cent of the private sector workforce.
The FSB welcomes the Government’s commitments to making work pay. However, it is important to stress the uncertainty of the current climate. In order for the Universal Credit model to work in the way it is intended, Government must create the right environment to encourage jobs growth.
The FSB also urges the Government to look at this area as a long term project as the benefits of work incentives and changing the whole benefits system will not produce immediate results.
As you will see below our response is divided into two parts, creating the right environment to enable jobs growth and getting people back into work.
We trust that you will find our comments helpful and that they will be taken into consideration.
Creating the right environment to enable jobs growth
Reducing regulation
1.
The complication of complying with numerous and in many cases disproportionate and expensive regulation acts as a disincentive for those wanting to expand their business. National Audit Office research has indicated that the constant flow and changes to regulations are the most burdensome aspect. In 2011 there will be substantial additional employment regulatory changes which will act as a further barrier to hiring staff. The forthcoming regulations include: Changes to Additional Paternity Leave, the introduction of the Agency Workers Directive, the phasing out of the Default Retirement Age and the introduction of Time to Train.
2.
Regulation is a hidden tax on business. FSB research suggests that one third of small businesses still rate regulation as the greatest barrier that their business faces only behind cash flow problems and the recession. Previous Governments have failed to make the tangible reduction in regulation that firms require.
3.
The FSB calls for the suspension of the introduction of any new regulation that negatively affects business over the next two years. We are also aware that there have been significant cuts made to Government budgets for advertising regulatory changes, making it even more difficult for small firms to find out how new regulation affects them. To further ease the regulatory burden, the FSB calls for mandatory common commencement dates for all UK regulation and mandatory post implementation reviews of all regulation affecting business – both stock and new. The FSB also calls for reform of the Local Better Regulation Office.
4.
The FSB reminds the Government that all regulation should comply with the Hampton principles of better regulation. The Hampton Review produced principles of good regulation: consistency, transparency, proportionality, accountability, and targeted actions and measures. These should be consistently applied throughout the regulatory system. The FSB is concerned that these principles are not being upheld.
5.
It is also important to mention that the introduction of the Universal Credit must not result in any additional burden for the employer. The FSB is particularly concerned that small businesses may have their time wasted by interviewing jobseekers who do not meet the job requirements and who are simply following a procedure in order to claim benefits.
Driving forward growth
6.
It is the UK's 4.8 million small firms that are critical to a private sector led recovery as they will boost tax revenues and employ the unemployed. The FSB suggests that in the short-term (within the next two years) the Government should expand the current National Insurance holiday scheme to existing micro businesses and that (as mentioned above) it must place a moratorium on the introduction of business regulation.
7.
Under the FSB’s plans, businesses that have between zero and four members of staff would pay no employer NICs on the first, or next three employees it hires up to the first £5,000 in NICS liabilities. The relief would apply up to the Upper Earnings Limit of £844 a week per employee, or about £44,000 a year. The scheme would last as long as the current Government scheme.
8.
Three new employees, on an average weekly salary of £489 (ONS Annual Survey of Hours and Earnings 2009) would save a small business £7,567.86 in one financial year under this proposal. This is an individual saving per employee of £2,522.62 in one financial year to the business.
9.
The Treasury would benefit from the creation of new jobs and the income tax and employees NICs during the same period. For example, one employee at an average weekly salary of £489 would still contribute £5,958.48 per annum. For three employees this would generate £17,875.41 for the Treasury or an additional £10,307.55 (once the relief has been removed).
10.
It is also imperative that by the end of the Parliament the Government creates more competition in the banking sector, be that through helping smaller banks get a foothold within the UK branch network, providing alternative sources of finance for small businesses to become ‘investment ready' and simplifying the process of accessing state funded venture capital funds.
11.
An FSB commissioned report by the Centre for Economics and Business Research shows that increasing the VAT threshold to £90,000, from the current rate of £70,000, could save up to £162 million per year from the reduction in red tape surrounding VAT compliance, as well as saving just over £700 million in VAT payments. This money could then be used to create up to 35,000 jobs if on an average wage. The increase in the threshold would benefit small businesses that will be adversely impacted by the impending VAT increase to 20 per cent.
Encouraging self-employment
12.
In the third quarter of 2010 there were 29.19 million employed people and 2.45 million unemployed people in the UK. During this period self-employment reached a record high of 4.03 million. The global economic crisis has had a significant impact on the private sector, resulting in hefty cost-cutting measures in businesses of all sizes. The Government has also begun to reduce public sector headcount to help balance the deficit. The number of people in public sector employment was 6.05 million in June 2010, down 22,000 from March 2010. This number is likely to increase significantly.
13.
The self-employed contribute £21bn in added value to the UK’s GDP every year and have proven themselves in adapting and adjusting to changes in the market place. With 18 unemployed people chasing every job vacancy and the spotlight solely on securing employment, there has been much less focus on the contribution self-employment can make to the UK economy. This must change in order to guarantee a new wave of long-term economic growth.
14.
An international workforce survey found that the economic downturn had resulted in a growing trend toward self-employment and entrepreneurialism. The Kelly Global Workforce Index, found that the rise of the self-employed was most pronounced in North America, with 26 percent identifying themselves in this category, compared with 19 percent in Asia Pacific, and 17 percent in Europe. As the economy struggles, self-employment is likely to increase. Government must now create a permanent infrastructure where these increases are no longer countercyclical.
Skills
15.
The FSB welcomes the extra investment in apprenticeships. It is vital that small businesses, particularly micro-businesses, receive assistance from government to provide an apprenticeship to increase the growth potential within their business. Small businesses struggle with the bureaucracy of taking on an apprentice which is why we are calling for a greater nationwide focus on Apprenticeship Training Agencies (ATAs). These agencies would employ the apprentice and deal with matters such as sourcing training and administrative issues surrounding Employer Compulsory Liability Insurance. An example of an ATA is the London Apprenticeship Company, a self financed organisation, which a business will simply pay a flat fee too. The fee will include carrying out all of the bureaucracy of placing an apprentice and sourcing the relevant training.
16.
The FSB is also calling on Government to invest in Leadership and Management Skills for the smallest businesses as often the limit is set at a business with at least five employees. By lowering the threshold to enable businesses, including sole traders, to co-fund leadership and management training we will see an increase in businesses looking to expand their staffing levels.
Getting people back into work
There must be cultural change at Civil Servant level
17.
This is essential to ensure the reforms are delivered in the manner in which they are intended. Currently, Jobseekers Allowance claimants need to demonstrate that they are "actively looking for work" and a claimant can be refused benefits if they refuse a "reasonable" job offer. It is important to look at how these rules are interpreted in practice. For example, reading advertisements in the paper currently counts as one of the activities to demonstrate "looking for work". It is also essential to define what is deemed to be a "reasonable" job offer – currently for the first 13 weeks of a claim there is more or less total freedom to turn down jobs, even if the person has claimed benefits many times before.
Flexible working
18.
Small businesses offer flexibility and are generally the happiest places to work, as shown by a recent survey by the Trades Union Congress. The FSB–ICM annual ‘Voice of Small Business’ survey in 2009 showed that 47 per cent of small businesses have staff who work part-time, 29 per cent have staff that work flexible hours and 27 per cent have staff who work from home. However, the formality of numerous right-to-request applications is anathema to small businesses. What the statutory requirements have failed to do is open up the number of jobs available and advertised as being flexible from day one. In a survey of lone parents in December 2008, Ingeus found that the lack of availability of part-time and flexible work was the most frequently mentioned stumbling block for people trying to return to work.
19.
The FSB strongly opposes further formalisation of the process and urges the Government to recognise the informal approach that small businesses take to flexible working requests from their employees.
20.
The Labour Force survey has shown that small businesses have more part-time posts as a proportion of their workforce than do the largest businesses. However, as these businesses are the least likely to advertise and recruit formally for jobs, their vacancies are often not seen by people seeking part-time work. In its report Flexible Working: Small Business Solutions, the FSB recommended that Jobcentre Small Business Recruitment Helpline must help businesses design part-time and flexible jobs that suit their needs.
Childcare
21.
A survey by the National Childbirth Trust showed that by far the biggest concern for women returning to work (60 per cent) was childcare. Finding excellent-quality, affordable and flexible childcare is a major hurdle for parents returning to work. Parents who are happy with their childcare are more likely to return to work and be more productive when they are in work.
22.
The previous Government responded to some of these problems with the current entitlement for all three-to-four-year-olds to receive 12.5 hours of free early education for 38 weeks of the year until they reach compulsory school age – rising to 15 hours per week from September 2010; however, there are problems with how this system is funded. With increased wage costs, curriculum demands and staffing regulations, nurseries see ever-rising costs that locally devised funding formulas fail to meet. Many nurseries provide the free hours at a direct loss to their business.
23.
The loss of private, voluntary and independent (PVI) nurseries only exacerbates the lack of choice and flexibility for parents in childcare provision. Underfunding free entitlement either pushes costs onto other children, or affects the overall quality of the childcare provided.
24.
At the same time the free hours are aimed at certain age groups. For many parents contemplating returning to work after maternity leave, the costs they face for childcare in the first year of work are significantly higher. Furthermore, the cost of having a second child in care can make the decision to return to work economically unviable for a family.
25.
In 2007–08 up to £10.5bn in income-related benefits went unclaimed in Britain. The FSB believes that this needs to be better directed to ensure that parents can choose the childcare they want and that nurseries are fully funded to play their part in government initiatives.
26.
The FSB’s report, Flexible Working: Small Business Solutions, made some recommendations to help solve the problem.
27.
Create a childcare bond: The average cost of childcare for a pre-school child in the UK is £152 a week. But this is subject to huge regional variation and costs also vary depending on the age of the child and the type of care received.
28.
As regards the free hours already provided by the state for certain age groups, the FSB believes that, rather than an hourly entitlement, parents of children of these age groups should be given a voucher that has a set monetary value. The childcare provider can then decide what that voucher entitles the parent to. For some providers it may cover 15 hours; for others it may cover more or less time.
29.
There are also differences between types of childcare. Bond allocation should vary regionally to allow for this discrepancy. This should be reviewed annually to match the findings of the Daycare Trust’s childcare costs survey and rises in the National Minimum Wage.
30.
Changing how Child Benefit or its replacement is paid: Parents should have the option of taking this benefit as a childcare bond and the amount should not decline with the birth of subsequent children. There could be more money allocated for a childcare bond if the funds previously allocated for the now scrapped Child Trust Fund and any unclaimed income-related benefits were diverted to the new bond.
31.
The FSB believes that giving incentives to parents to invest their bonds in childcare will enable more parents to return to work and move off benefits.
32.
Helping employers continue to support childcare: It is vital that the Government continue to support childcare vouchers available through employers. Small businesses should be encouraged to take up childcare voucher schemes as they are the employers least able to come to other beneficial childcare arrangements for their employees. Government portals should have clear guidance on how to join a scheme and on the benefits for parents and employers.
IT issues
33.
We welcome the Government’s commitment to calculate and deliver electronic payment of the Universal Credit, automatically adjusting credit payments according to monthly income reported through an upgraded version of the PAYE system.
34.
In our response to the Government’s consultation on welfare reform we noted that previous Government IT projects had not always been delivered to time and budget and in many cases need further work. It is with this in mind, that we suggest that a full audit must be made externally into all IT based Government projects in each of the last six years. This would establish, which, if any, contracts were delivered on time and to budget, those that required further work and cost in excess of original contract, those that required contract resubmission, further investment or in particular reworking to effect delivery and to make sure that those involved in supervision, audit and delivery be held to account. We feel that this principle must be established ahead of any further roll out of Government IT projects.
December 2010
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