Self-Employment

Debate between Mark Garnier and Toby Perkins

Tuesday 24th January 2012 Westminster Hall

[Mark Garnier]

I agree. Our complex tax code is full of all sorts of unintended consequences exactly like the one that my hon. Friend mentioned. It is ridiculous having a tax that means businesses going above £73,000 will have to start charging their customers. That is a disincentive to growth in terms of going out and gathering business. If people stay below that threshold, it is a disincentive to employ more people.

[Toby Perkins]

The hon. Gentleman is talking about the difficulty with taxation faced by small firms. Will he support Opposition Members calling for a national insurance holiday for any micro-business with less than 10 employees that takes on a new member of staff?

[Mark Garnier]

A national insurance holiday? I think that we are already doing it. That is a policy of ours.

[Toby Perkins]

For micro-business.

[Mark Garnier]

I am sorry; the hon. Gentleman is talking about extending it to micro-businesses. Yes, all this has to be put into the mix of things that we need to look at. It is important to consider any way that we can help more micro-businesses.

FSB members say that our tax system is detrimental to their ability to make capital investments in their business, which again is another reason why people are being held back.

On a wider social point—sticking with tax complexity—it is worth noting that a complex tax system allows a huge range of opportunities for tax avoidance and tax evasion, which makes it extraordinarily complex for Her Majesty’s Revenue and Customs to collect tax and ensure that we avoid the tax gap, which is estimated at anything between £40 billion and more than £100 billion a year. The rest of us have to pay for that tax gap and lack of revenue through increased taxes.

Half of small businesses spend at least two hours every week complying with their tax responsibilities alone and for 10% of businesses, particularly small micro-businesses, that can take up to six hours per week—six hours when those businesses should be capturing new customers, developing new products and investing in their future.

Two thirds of businesses feel that they need professional help to complete their tax returns, which costs them on average an extra £3,000 a year. One third of them find that national insurance in its various forms is difficult to understand. Half of businesses find allowances difficult to get to grips with. Frankly, it is all far too complicated and too expensive in man hours and financial resource to administer.

Regulation is the second area of extreme unrest for micro-businesses. According to the World Economic Forum’s global competitiveness report, the UK is ranked 89th out of 139 for the burden that regulation places on businesses. Aside from the obvious problem of possibly deterring inward investment, the overburden of regulation, especially in the realm of employment law, is cited by businesses as a reason not to expand.

In a business survey in 2008—that was some time ago, but it gives a good idea of trends—a third of businesses thinking about expanding cited fear of regulation as a significant headwind to be faced in expansion and therefore a key factor in their decision. The same survey revealed that half of businesses planning to downsize or close rated regulatory burden as important in their decision to do so. The 2008 survey was undertaken in difficult trading conditions, but regulatory burden should not be a significant factor when businesses are struggling to stay alive in a difficult environment.

Possibly more worrying is the fact that in the 2009 business survey 34% of businesses that were no longer employers cited complying with legislation as a reason for no longer employing staff. This is madness.