Businesses slam Budget decision (From Western Telegraph)

Businesses slam Budget decision

OPERATORS of small businesses in Pembrokeshire predict that the 1% hike in national insurance contributions could have a devastating effect on employment in the county.

The Pembrokeshire branch of the Federation of Small Businesses (FSB) says it is both astonished and disappointed by the Chancellors decision to raise contributions in his April Budget.

And the impact will not be limited to the private sector. Pembrokeshire County Council will have to find an extra £830,000 a year to meet its increased employer contributions.

As the largest employer in the county, the rise could have a significant impact on its operating costs. There are fears that it will lead to a cut in services, but the authority hopes the National Assembly will foot the bill. It will join Carmarthenshire County Council in lobbying the Assembly to increase its settlement next year to ensure services in Pembrokeshire are not affected.

Says its spokesman: The authority would expect the National Assembly to provide additional revenue support grant in 2003-04 to offset the additional cost of national insurance contributions next year. The expenditure sub-group will feed this additional burden into its revenue support grant discussions, which will commence in the next few weeks.

Meanwhile, leaders of small businesses in Pembrokeshire have attacked the rise, which they say equates to a 2% hike in income tax. Stephen Cole, who runs The Telephone Exchange at Milford Haven, and is South Wales branch chairman of the FSB, describes it as a stab in the back for enterprise.

The increase in national insurance contributions will have a devastating impact on employment. Both employees, employers and the self-employed are all affected, he says.

Basic-rate tax payers will effectively pay a rate of 33% - 22% income tax and 11% for national insurance contributions. National insurance will be seen as only another way of the Government imposing tax increases. Whats the difference between income tax and national insurance contributions to the taxpayer at the end of the day? But Stephen warns the self-employed against incorporating themselves as companies. The self-employed can pay themselves in dividends as well as a salary and dividends are not at present subject to national insurance contributions.

Always seek professional advice before making any changes to your status, advises Stephen. What tends to look good in one way may be offset and possibly be even worse in another.