·     The government’s policies are failing small and medium-sized enterprises.

·     The government should abolish employer’s National Insurance contributions for small and medium-sized enterprises.

·     It should also slash costly regulations that are holding back economic growth.

In a report released today (Monday) the Adam Smith Institute (ASI) calls on the government to take radical steps to kick-start employment in small and medium-sized enterprises (SMEs).  The UK’s economic growth prospects depend on SMEs creating jobs to deliver a recovery. SMEs account for 99% of private sector firms, and should be exempted from much of the onerous regulatory and tax burdens that currently stifle their success.

Gimmicks such as ‘shares for rights’ and a government-funded business bank will not address the real barriers to SME growth and will only advantage a small percentage of small businesses. In order to restore confidence in the British economy and reduce the burden of regulation on small businesses, the report’s author, economic analyst Vuk Vukovic, proposes a set of policies the coalition government should implement immediately:

·     Abolish employers’ national insurance contributions. NI contributions are too high, particularly for microbusinesses.  Business surveys suggest that scrapping NICs for small businesses would create a minimum of 500,000 jobs (1).

·     Simplify the regulatory system for SMEs. This would reduce the costs of hiring lawyers and accountants to allow SMEs to comply with regulatory standards and therefore free up funds for profit-making activities. Our complex regulatory system is responsible for layoffs, stalled investments and lower profits and is one of the most severe constraints to UK competitiveness. Only a radical simplification of the system will free up small companies from the disproportionate costs of compliance.

·     Make it easier for SME employers to hire and fire workers. Britain’s employment laws are a barrier to SME expansion. The fear of tribunals and the difficulties in firing unproductive workers make it costly and dangerous for small companies to take on new employees. In reforming employment laws and adopting many of the Beecroft report proposals, hiring more employees will become attractive and increase labour-market flexibility.

·     Reverse the 5.6% hike in business rates. This increase was introduced in April 2012 and places another financial strain on small businesses that many cannot afford.

These proposals would allow SMEs to flourish by reducing costs and uncertainty about employment and industry regulations. The coalition government has failed to recognise the complex environment that SMEs operate in and the heavy costs that the government currently places on them. Only by cutting taxes and regulations for these businesses will we see real business growth in the SME sector.

Sam Bowman, Policy Director at the Adam Smith Institute says “We need a recovery led by private-sector job creation, but small and medium businesses are operating in a world of uncertainty and maddeningly complex regulation. The government needs to radically reduce the regulatory and tax burden on small and medium businesses before it can hope for a recovery.

“Employers’ NICs are a destructive stealth tax on jobs and should be scrapped, and employment regulation designed to protect workers is in fact condemning many of them to long-term unemployment. Implementing the proposals in this report would help to revitalize the private sector and deliver the jobs and economic growth that are so badly needed right now.” 

(1)    This statistic is based on information from FS and BCC which found that between 44% and 60% of small businesses would take on additional employees if the government ended employers’ NICs. The 500,000 new jobs is based on the lower figure of 44% and discounts sole proprietorships.