The Institute of Directors (IoD) has argued that changing the decision to increase national insurance contributions would generate higher tax receipts in the longer run.
Instead of taking money out of the economy, as some economists have claimed, a reversal of the NIC hike would leave resources in the hands of businesses, allowing them to increase business investment and create new jobs, the IoD said.
Rather than imposing higher business taxes when the economy is fragile, the government should be encouraging firms to grow, boosting tax receipts on the rise in business profits that would follow.
To support its position, the IoD cited a survey of 1,800 of its members in which 43 per cent of respondents thought that the rise would discourage them from taking on new staff, and 76 per cent believed the increase would be negative for the economy.
Given that eight out of ten of those respondents were directors of SMEs, the IoD insisted that the issue was one for all types and size of firm.
Greater emphasis, the IoD continued, needs to be put on reducing public spending.
Miles Templeman, the IoD’s director-general, said: “A reversal of the NIC hike would allow businesses to use those resources to increase business investment and create new jobs. Overtime this will help public finances far more than this tax rise, because we know that business growth will translate into ever higher tax receipts for the Treasury.
“Clearly we need to get the deficit down quickly, but the way to do that is to grasp the nettle on public sector spending, not with tax hikes on business. Of course, cutting spending involves some tough political decisions, but these will have to be taken sooner rather than later.”