Shadow Chancellor George Osborne's promise to exempt new small firms from National Insurance is welcome news to the Adam Smith Institute. It has long been one of our central tenets that small businesses are more heavily burdened by taxes and regulations than are larger ones. A firm with hundreds or even thousands of employees can spread the cost of compliance, but to a small firm the expense and the time consumed can be crippling.
We have long advocated that small firms should be treated as a special sector, subject to lighter taxes and regulation. Of course, we want all firms to have those burdens reduced, but we think small firms are a good place to start. They generate most of the new jobs, and represent the future of employment. The biggest hurdle for a start-up firm is the stage when it first begins to take on paid employees. The nightmare of form-filling, compliance and charges begins, and is enough to keep many firms small in order to avoid it.
Osborne's move is a bold stroke because it establishes the principle that new and small firms require special treatment. Like tender shoots they need to be nourished and protected so that one day they might become big and sturdy. That principle, once established, can be extended. The next government should have ready a raft of proposals for selective application to small and new businesses. The aim must be to create the space of a light tax and regulatory regime in which they can grow at full speed to generate the future wealth and the jobs on which our prosperity will depend.
The encouraging thing about their new pledge is that it indicates the Conservatives are now beginning to look at the economy for ways to promote incentives, opportunity and enterprise. This is just what the ASI does.
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