Rise in NI 'could send thousands of small businesses to the wall'

Small businesses are pleading with the Treasury to defer the rise in national insurance contributions (NICs), warning it could push thousands of firms out of business.

The Federation of Small Businesses (FSB) said a combination of uncertainty over war with Iraq and the sharp global slowdown had already pushed small firms to the edge.

The 1 per cent hike in NICs, which will hit pay packets next month, was announced in the 2002 Budget and was widely attacked at the time.

Stephen Alambritis, a spokesman for the FSB, said: "While the Chancellor could not have been aware of this last year, the timing is unfortunate and may cause a blip in the number of business failures this year, which are already up. "The hike in national insurance especially for small employers is a worry, especially combined with a difficult trading year and uncertainty over Iraq," he said.

He called on Gordon Brown to use the Budget to throw a lifeline to the sector, either by deferring the impact, providing concessions for the self employed and small firms or offering offsetting tax breaks.

The measure, which aims to raise £4bn a year to help fund the Government's massive health spending plans, will hike contributions for both employers and employees.

Tax experts at the Institute of Chartered Accountants warned that the increase would seriously impact on small firms, who employ more than 40 per cent of the UK workforce.

Mark Lee, head of the institute's tax faculty, said: "This is a financial drain, which may tip the balance between success and failure, especially in fledgling businesses.

"It is easy to say there's been plenty of time to plan for this, but many small businesses are having serious problems coping with the additional burden."

Figures from the global business information firm Dun & Bradstreet show that the number of failures among small and medium-sized enterprises (SMEs) surged by almost 3,000, or 7.2 per cent, to 43,458 last year.

The institute called on the Treasury to look at measures to offset the burden on SMEs, "given that they are the engines of growth the Government has committed to encourage".

A Treasury spokesman said he could not comment until the Budget. "We considered it right that it was national insurance that was used to pay for the NHS spending," he said.