Review of crippling insurance premiums to help keep businesses afloat

Business

Businesses struggling to keep afloat in the UK's ailing economy had their hopes raised of a possible lightening of the burden of compulsory workplace insurance.

The Chancellor said the Department of Work and Pensions will launch a review of employers' liability insurance because of increasing distress calls from companies in the past six months about the cost.

Gordon Brown also attempted to boost small companies with plans to make it easier for them to borrow money from the bank and to invest along with large companies in research and development through closer ties with universities.

Small businesses have seen the cost of employers' liability cover rise by as much as 400 per cent this year, forcing some to take the illegal step of being in business without the cover.

Gary Booton, head of health and safety at the Engineering Employers Federation, said: "Such a review is a welcome first step and something for which we have been calling. The case for joined-up policy reform involving government, insurers and business is compelling."

The federation and representatives of the insurance industry are calling on the Government to change the structure of employers' liability insurance, so companies can insure themselves against potential accidents at work separately from the risk of employees contracting illnesses.

The private sector would also like to see the Government agree to pay some claims arising from workplace-contracted diseases because the cost of those types of claims has soared in recent years and is set to go even higher.

While Mr Brown indicated he is receptive to reform of employers' liability cover, companies were disappointed that he ignored calls to reduce the insurance tax burden, by reducing the 5 per cent levy companies must pay on insurance.

Companies had hoped for a relaxation because rising insurance prices mean the Treasury is set to receive £300m more from insurance premium tax than it usually does.

Separately, Mr Brown, saying he wanted to extend the "enterprise culture" further among smaller companies, said the tax credits for research and development announced last year would be extended.

Richard Lambert, former editor of the Financial Times, will review the relationship between companies and universities and will suggest ways to extend tax credits especially to smaller companies that fund scientific research. It is part of a drive to keep more ideas discovered in the UK developed into business projects in the UK.

It follows a number of high-profile British companies moving large chunks of their businesses to other countries, including the vacuum-cleaner maker Dyson, the model railway company Hornby and Raleigh, which makes bicycles.

David O'Keeffe, tax partner at KPMG, said: "The UK has traditionally been good at finding ideas which are turned into products somewhere else, so this is a logical step. But the Inland Revenue is very rigid at the moment about tax credits and there is a long way to go before there is a real benefit for UK plc."

The Chancellor also announced plans to enable smaller companies to take out large loans to fund R&D and investment by extending the small firms loan guarantee scheme from April 2003.

Mr Brown indicated 25 per cent more businesses would benefit from the scheme, under which the Government guarantees loans to companies so that banks are more willing to lend to them. The current scheme only applies to companies with an annual turnover of up to £1.5m. It will be extended to companies which generate £3m in turnover.