National insurance holiday fails to create jobs
Today’s FT (paywall) reports that “George Osborne’s flagship plan to boost jobs outside the prosperous south-east of England – a national insurance holiday for new small companies – has so far proved a flop, with early applications falling far short of official expectations.” The paper reports that by the middle of January only 1,500 entrepreneurs applied for the scheme. These poor results are no surprise to the TUC – back in September Richard reported that the last time a Conservative government launched a similar initiative it had no measurable impacts.
In his June Budget, when the policy (a NI holiday for selected start-ups taking on new employees over the next three years) was announced, the Chancellor stated that “…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.” 400,000 businesses over three years from September 2010 is around 11,100 a month – so by mid-January the Treasury was presumably hoping for around 50,000 employers to have applied to the scheme. Unfortunately 1,500 is only 3 per cent of this target. So, even allowing for a lead in period while the scheme sets up, it seems that the Government is running a little behind schedule. And it’s also worth considering that without a formal evaluation we don’t know what the deadweight effect is – presumably at least a few of those who have enjoyed the NI exemption so far would have taken on staff without it.
The FT reports, again as Richard predicted, that awareness of the scheme among employers appears to be low and that, as Robert Chote has previously suggested, that the programme’s complexity may be reducing its impact. It may therefore be that we see some changes to the scheme’s operation over future months. But while it is too early to assess whether or not take up rates will improve, we stick by our analysis that it remains unlikely that anywhere near 400,000 businesses will benefit: the key factor influencing whether start-ups take on new employees is not whether or not they have to pay their staff’s NICs but whether there is enough demand to make their businesses viable. With growth forecast to remain weak next year, it seems unlikely that a surge in job creation by new businesses is on the cards.