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Hike VAT, Retract NIS Hike, Says British Businesses Body

Tuesday, February 16, 2010

The British Chambers of Commerce (BCC), on behalf of British businesses, has called on the government to announced a u-turn on its proposal to hike National Insurance Contributions (NICs).

41% of companies that responded to the BCC's latest Monthly Business Survey believe that an incoming government should make reducing the budget deficit its number one priority. 22% of firms said that slashing the red tape burden should be a high priority, while 13% argued that the focus should be on making the UK’s tax system more competitive.

Businesses also revealed that an increase in National Insurance Contributions would be the most damaging tax rise for the government to impose on them - just 6% felt that a NICs rise would be the least damaging option, compared to 36% for VAT.

According to the Treasury’s “Tax Ready Reckoner,” raising VAT by just 1% - to 18.5% - would net the government an extra GBP4.5bn in revenue. The 1% increase in NICs, planned for 2011, would provide a similar sum, raising GBP5.1bn. With these figures in mind, the BCC is arguing that the planned NICs hike should be scrapped, and substituted by a VAT rise coupled with targeted spending cuts.

Commenting, David Frost, Director General of the British Chambers of Commerce, said: “The message from business is clear. After an election, we have to get a serious grip on the country’s public finances and escalating debt. Cutting the deficit means making tough decisions on spending, like freezing the public sector wage bill and reforming public sector pensions.”

“Companies have and will continue to play their part in creating wealth and jobs, generating economic growth and driving recovery, but the right environment needs to be in place."

“Raising a damaging tax on business, like NICs, will be counter-productive. It will mean fewer jobs and less tax revenue in the long-term. While businesses fully understand the need to bring down the UK’s deficit, they are clearly saying that using VAT would be a less damaging way to achieve this.”