Small Business Saturday: Cut taxes to save local small businesses says Zöe Franklin

Small businesses are the lifeblood of our communities yet the Conservative Government is crippling them with planned increases in National Insurance contributions from the new year. Here in Guildford and Cranleigh these rises will impact an estimated 2,000 small businesses and entrepreneurs and cost them a massive £5.1million.

Once again the Conservatives are showing that they don't understand or care about small businesses by ploughing on with these tax increases in spite of businesses' mounting bills and worries about the impact of the new Covid variant in the coming weeks.

Ahead of Small Business Saturday tomorrow I am calling, alongside Liberal Democrat colleagues, for taxes to be slashed on small businesses. Our proposed tax cut would save small businesses an average of £5,000 a year by helping them with staff costs, and would be achieved by quadrupling the Employment Allowance to £16,000 for a period of two years. This would allow a small business to employ five people on an average salary without paying any National Insurance contributions. 1.1 million businesses would be eligible for this tax cut, which would save them an estimated £5.5 billion next year.

This tax cut is crucial. According to a recent survey by the Federation of Small Businesses, a record number of small businesses say they are struggling with rising costs whilst new Covid restrictions loom. Local restaurants are also reporting Christmas bookings being cancelled, which will set owners back thousands of pounds.

Small businesses have suffered enough over the course of the pandemic and need our help. This big bold offer is the way to show our commitment to small businesses and ensure they can thrive in 2022.

Zöe Franklin
Liberal Democrat Parliamentary Spokesperson for Guildford, Cranleigh and our villages

3rd December 2021

In detail: How the tax cut would work and how it would be funded

Quadrupling the Employment Allowance to £16,000

The Liberal Democrats are calling for a tax cut that would save small businesses up to £16,000 a year. This tax cut would be achieved by quadrupling the Employment Allowance to £16,000.

The tax cut would allow any small business whose annual NICs bill is less than £100,000 to employ 5 people without paying any NICs - provided they are paid the median UK salary (£31,285).
1.1 million businesses would be eligible for this tax cut, which could give them a cash injection of up to £16,000 a year. 86% of claimants could end up employing at least half their staff tax-free (930,000 EA claimants employ 1-9 people).
This tax cut should stay in place for a minimum of two years to support the UK's economic recovery from Covid-19. It should then be reviewed and extended accordingly.
According to the ONS, UK median annual pay for 2020-21 stood at £31,285. A salary at that level equates to employer's NICs worth £3,097 at the current rate of employer's NI, and £3,378 at the new rate of NI set to be introduced in April 2022.
We estimate that this policy would cost £5.5 billion a year. According to HMRC, raising the EA by £1,000 (from £3,000 to £4,000) will cost the Government £455 million in 2021-22. This implies the current cost of the policy at £4,000 is £1.82 billion. Quadrupling the allowance would cost an additional £5.5 billion compared to the policy's current cost.
This means that this £5.5 billion cash injection would translate to an average tax saving of £5,000 across the 1.1 million eligible businesses.
Employment Allowance takeup statistics for 2020-21, including takeup on a regional and constituency basis can be found here.

SMEs affected by the National Insurance rise per constituency - House of Commons Library Methodology

Local area data shows that there are 2.77 million VAT and/or PAYE based enterprises in the UK. This suggests that there are around 1.17 million businesses with 0 employees (2.77 million minus the Government's estimate of 1.6 million businesses with at least 1 employee). These 1.17 million businesses were shared across local areas using each area's share of the UK's businesses with 0-4 employees.
The Library shared the estimated 640,000 businesses that won't pay the levy between local areas using the share of the UK's businesses with 0-4 employees in each area (the same approach as with the 1.17 million businesses with 0 employees).
For each local area, there is data on the number of businesses with 0-4 employees. The Library estimated the number of businesses in each area with 1-4 employees who are paying some additional NICs by subtracting the estimates that come out of the two above bullet points from the actual data on businesses with 0-4 employees.
The Library assumed that all businesses with over 4 employees will pay the health and social care levy.
This analysis does not account for different earning levels in each area and therefore should be seen as an indicative estimate.

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