George Osborne's National Insurance Holiday Plan Helped Just 24,000 Firms, Not 400,000

The Chancellor of the Exchequer George Osborne during a visit to the CNC milling section at Castle Precision Engineering in Glasgow after the launch of the Scotland Analysis paper on Currency and Monetary Policy in Glasgowl.
The Chancellor of the Exchequer George Osborne during a visit to the CNC milling section at Castle Precision Engineering in Glasgow after the launch of the Scotland Analysis paper on Currency and Monetary Policy in Glasgowl.

George Osborne's National Insurance holiday scheme has been branded a 'total flop' after officials admitted that just 6% of the expected number of businesses have benefited from the tax break.

The scheme, launched in September 2010, set out to offer national insurance cuts of up to £5000 each for 400,000 firms within three years for the first ten employees they take on in the first year of operation, as a way to promote the growth of new businesses.

However, HMRC admitted that just 24,000 businesses have been helped as of the end of June 2013, meaning that the scheme has achieved 6% of its target near the end of its planned duration.

Nearly 4,000 of those businesses (3935) received their NI holidays in the first six months of 2013.

The latest figures were released by HMRC after a Freedom of Information Request from the Huffington Post UK.

Labour's treasury minister Cathy Jamieson said: “These figures show that George Osborne’s flagship growth policy has been a total flop.

"After nearly three years the scheme has helped just six per cent of the number of businesses promised. With unemployment high and a growing cost of living crisis this is a huge disappointment.

“Labour said two years ago that the unused funds in the scheme should be put to good use. We called for a national insurance holiday for all small firms taking on extra workers, not just new ones. Ministers finally announced something similar in the Budget, but it won’t take effect until next April. That’s nearly four wasted years when George Osborne could have helped thousands of small businesses to expand and create jobs.”

A spokesperson from the Institute of Directors said: “National Insurance contributions are just part of the reason why it’s hard for employers to take on new staff, and whilst nearly 25,000 firms have benefited from this scheme, it’s clear that such limited interventions will never as be as beneficial as a reduction in the overall tax burden.”

A Treasury spokesperson said: “Although take up for the holiday has been far lower than expected, as of March 2013 around 22,000 registrations had been received, supporting an estimated 70,000 jobs.

"While there are no plans to extend this, the Government has taken action to reduce the employer NICs burden on small businesses by announcing the creation of a new Employment Allowance. Going further than the holiday the Allowance will be permanent, and will be open to all businesses and charities in the UK. It will also be simple to administer, to ensure maximum take up. From April 2014, every business and charity in the UK will be able to reduce their employer NICs bill by up to £2,000 each year.”

Back in his June Budget speech over three years ago, the chancellor said the Treasury expected 400,000 firms to benefit from the National Insurance scheme.

“For the next three years anyone who sets up a new business outside London, the South East and the Eastern region will be exempt from up to £5,000 of employer national insurance payments, for each of their first 10 employees hired," he said.

"We aim to have the scheme up and running by September, but any qualifying new business set up from today will also receive help.

"And the Treasury estimate that some 400,000 businesses will benefit – ensuring all parts of our country contribute to a more balanced and sustainable economic future."

In an implicit sign that the National Insurance holiday scheme needed improvement, chancellor George Osborne unveiled a new employment allowance in his 2013 budget as its replacement, which would allow employers to avoid paying the first £2,000 of their NICs.

John Allan, National Chairman of the Federation of Small Businesses, said: “The Employment Allowance, due to launch next year will mean that many small firms won’t pay national insurance at all.

"However, prior to this, research by the Federation of Small Businesses showed if the National Insurance Contributions holiday scheme had been extended across the country an additional 45,000 jobs could have been created and £1.3 billion added to GDP.”

This comes after research from Labour in 2011 suggested the scheme was costing more to run than it had delivered in help for new start-up businesses.