November 11, 2008

Tories confused over business tax breaks

by Brian Turner

Tories confused over business tax breaks

The Tories have announced their planned tax breaks for business – which essentially boil down to National Insurance incentives for companies taking on people unemployed for over three months.

Political arguments about the suitability of the Tories to govern aside, David Cameron seems to have just sounded confused about what business needs.

In times of stress, business needs to be able to invest in itself and entrench its position. That means taking on value staff, improving assets, and of course, streamlining operational costs.

So why on earth, at such a time when many companies will be thinking of laying off skilled workers – would they be interested in employing the unemployed? Where’s the value proposition for business in losing skilled workers, to be asked to take on potentially less skilled?

That’s not to say that all three-month unemployed are unskilled – certainly we know there are plenty of people with valuable skills made redundant across the service sector.

But where business is already culling staff which have operated well within a company, why would that same company then bring in new faces to train and replace them?

National Insurance breaks are all well and good, but Cameron seems to have overlooked the hidden costs of training new people.

No – if tax breaks for employment are on the table, then this should be focused on retaining skilled employees and preventing the dole queues getting bigger. Surely that would make much more sense?

Additionally, despite his failings as Chancellor – encouraging boom and bust, writing “Golden Rules” which were rewritten and then abandoned for political expediency – Gordon Brown’s acceptance that general business tax breaks may be required is a much more viable proposition.

Companies don’t get stronger by random hiring – they get stronger by hiring skills, but at present the UK’s tax regime makes hiring prohibitive for small business.

On the one hand, National Insurance and income tax for employers means that every employee costs a third more just in tax liabilities. And then there are the paperwork issues of PAYE and issuing P60′s and similar.

For many one-man bands outsourcing and freelance services just make much more economic sense than direct employment, and the UK government just hasn’t addressed making that more attractive.

For David Cameron’s team to therefore focus on employing the unemployed as a business strategy, suggests that really, they are not very in touch with the real economic needs of business.

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