After the NIC reversal, a significant cut in the 'jobs tax' would help small business

The recent U turn by this government, reversing the proposed increase in Class 4 National Insurance Contributions for the self employed is very welcome. It followed a storm of protest from all political persuasions after the Chancellor's Budget announcement. The climbdown was due, not least, to the fact that it went back on the Tories manifesto commitment not to increase VAT, Income Tax or National Insurance. It was a change made reluctantly, with the Chancellor insisting that the increase was 'fair' but not in the spirit of their manifesto commitment.

So a small victory for beleaguered and hard-pressed small business owners but it did throw into focus this government's broader strategy for small business. They seem to be gradually removing any tax incentives for small business owners and creating more parity with employment. So entrepreneurial small business owners have received little help from this government in creating a more favourable trading environment.

There is more bad news on the horizon for the smallest of small businesses with the removal of Class 2 National Insurance Contributions. To maintain their entitlement to a State Pension many small business owners will need to make voluntary NI contributions which will be significantly more costly than in the previous system.

So how can the government really help and show their business-friendly credentials? Well it is unlikely that they will reverse the regressive dividend tax or changes to the VAT flat rate scheme so we won't go there. We are also stuck with the increased burden and cost of pensions auto enrolment. The rates revaluation is underway and there will clearly be winners and losers and more uncertainty for many small businesses.

The best idea I have heard for a real 'leg up' for small business was proposed from an unlikely source in the run up to the last General Election. The Scottish National Party proposed an increase in the Employment Allowance, then £2,000 per annum, to £6,000 per annum. This so called 'jobs tax' costs employers 14% of an employee's wage cost above the NI threshold. Increasing the employment allowance significantly above the current level of £3,000 is a radical idea and in my view one with a great deal of merit. Unlike cuts in corporation tax which benefit larger businesses disproportionately, the SNP's own figures suggested that 95% of the employment allowance increase would go to small business. It would reduce the cost of taking on employees and increase competitiveness.

It would be nice to see a coherent strategy for small business which includes a fair tax system which encourages growth, investment and entrepreneurship. The most recent changes seem to be more about filling up the Chancellor's depleted coffers from small business owners who have been inclined to shrug, roll up their sleeves and get on with things. Maybe the NIC U turn will be the start of a small business fightback and show that we are not a soft touch any more. A significant increase in the employment allowance would be a step in the right direction for this government to show they really want to support growing small businesses.

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