TaxPersonal TaxThe penny’s dropped

The penny's dropped

'A penny on national insurance is actually less of a burden on business than the alternatives.'

These comments from Tony Blair to Accountancy Age this week will play well with the electorate at large. But how well they play with businesses themselves will, in truth, be Patricia Hewitt’s problem.

Politically the risks appear small: the pledge to use the money raised to rescue the National Health Service has gone down well with voters as campaigning for next week’s ‘forgotten’ local elections hots up. But business groups are unimpressed at being forced to pick up the bill.

They are also unimpressed at the lack of warning they had. While electors were being softened up for a tax hit (and national insurance is a tax) businesses were hit with a sucker punch they did not see coming.

Hewitt is well aware of the problem this presents. In a speech to last week’s British Chambers of Commerce Annual Conference, the trade secretary even acknowledged that the hike in employers’ NICs had been an ‘unwelcome surprise’ to some.

But she also seemed to hold out an olive branch: ‘We want a grown-up relationship between government and business, a relationship based on fairness, not favours.’

The corporate backlash has clearly taken ministers by surprise. And it goes to demonstrate that consultation is much more than a cosmetic exercise.

A couple of years ago when consultation over other tax rises was all but non-existent (remember the furore surrounding double-tax relief?), relations between the Inland Revenue and accountants soured.

They have recovered. But the sudden employers’ NIC hike has created a fresh danger than relations between business and Whitehall could be troughing once more.

Labour’s love affair with business may not be over. But UK plc will need some convincing that this government does not see it as a soft touch.

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