£2.4bn ‘tax bombshell’ to hit small and medium-sized businesses, say Lib Dems

The Liberal Democrats called on the Chancellor to cut small and medium-sized businesses’ employer contributions.

Geraldine Scott
Sunday 24 October 2021 22:30
Liberal Democrat MP Christine Jardine (Aaron Chown/PA)
Liberal Democrat MP Christine Jardine (Aaron Chown/PA)

The Liberal Democrats have accused the Government of creating a “tax bombshell” for small and medium-sized businesses by raising national insurance.

Research commissioned by the party said businesses with fewer than 250 employees would pay an extra £2.4 billion a year due to the 1.25% rise in national insurance (NI) announced by Boris Johnson in September to cover the cost of social care.

Research from the House of Commons showed areas such as Birmingham, Glasgow, Leeds and areas of London were set to pay tens of millions extra.

Rishi Sunak must give small businesses the chance to grow again instead of clobbering them with a crippling tax rise

Christine Jardine, Lib Dem MP

But other areas in the so-called former red wall, where the Tories took many seats in the 2019 election, are also due to be hit, including Kirklees in West Yorkshire and County Durham, the research shows.

Cornwall, Buckinghamshire and Northamptonshire are the areas outside of cities where small businesses will pay the most, it shows.

The research said that of the £8 billion that will be raised from businesses through the rise, 70% will come from the largest 1% of businesses – those with at least 250 employees.

But Christine Jardine Liberal Democrat Treasury spokesperson, said: “The Conservatives’ broken manifesto promise will create a tax bombshell for the small businesses that are the backbone of our communities. It’s little wonder that voters no longer see the Conservative Party as the party of low tax.

“We have already lost far too many treasured shops from our high streets, and too many businesses are drowning in tax rises and red tape.

Rishi Sunak must give small businesses the chance to grow again instead of clobbering them with a crippling tax rise. The Chancellor is out of touch with small businesses and if he truly cared about their survival, he would cancel this tax hike immediately.

Chancellor Rishi Sunak on BBC One’s The Andrew Marr Show (Jeff Overs/BBC)

“The Liberal Democrats want to unleash the power of small businesses to create jobs and drive our economic recovery, by giving them the tax cut they need and deserve.”

The party is calling on the Chancellor to slash small and medium-sized businesses’ employer contributions at Wednesday’s Budget instead of raising them.

On Sunday, Mr Sunak said he wanted to be a tax-cutting Chancellor, despite the Government raising national insurance to pay for social care.

He told BBC One’s The Andrew Marr Show: “Of course, my instincts are to do that, that’s what I believe, I want people to better keep more of their money, I want to reward people for working.

“I think that is a good thing and I think that will help drive economic growth.

“But as we discussed, I’ve also had to grapple with an economic shock, the biggest in 300 years, borrowing that (is) the highest since World War Two, and things like the elective backlogs in the NHS being at record levels which we want to make progress on. Those are some of the challenges.”

The Government insisted at the time that the rise was needed in order to help the NHS recover from the pandemic and to introduce reforms.

A Treasury spokesperson said: “We’ve backed businesses throughout the pandemic through our plan for jobs – and it’s working, with nearly two million fewer people now expected to be out of work than was previously feared.

“We’ve also shown we are committed to supporting investment through the tax system, extending the annual investment allowance increase for another year and introducing the super-deduction.

“It’s right that the health and social care levy costs are widely shared between business and individuals – with 70% of the money raised coming from the biggest 1% of employers and 40% of businesses won’t pay anything.”

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