From the TUC

Employers’ National Insurance Contributions ‘holiday’ starts

06 Sep 2010, by in Labour market

The relief scheme for employers’ NI Contributions, announced in the June Budget, starts today. The “holiday”, which will run till 2013, will mean that new businesses set up outside London, the South East and East of England will not have to pay employers’ NICs for the first 10 workers they recruit. When George Osborne announced this policy at last year’s Conservative conference, he predicted that it would create about 60,000 jobs, but the government is now claiming that 400,000 businesses will benefit.

With the abolition of the Future Jobs Fund and unemployment likely to start rising again soon we need all the positive employment measures available, and the NIC holiday will do some good. Unfortunately, I find it hard to believe it’ll create 60,000 jobs or be taken up by 400,000 businesses.

The Conservatives have run a similar policy before. Also known as a “NICs Holiday”, it ran from 1996 to 1999 and covered the whole country but was restricted to employment of long-term unemployed people. The Department for Work and Pensions produced two evaluations; one found that three quarters of employers were unaware of it and, of those who claimed to know about it, four-fifths did not correctly remember any details about eligibility for the scheme. The other report found that the subsidy was too small to influence the behaviour of large employers and that small employers were put off by the requirement that they recruit long-term unemployed people.

It might be argued that the new scheme is going to be more effective because it isn’t restricted to long-term unemployed people. Provided it’s adequately advertised (which hasn’t happened so far) more employers might get to hear about it this time. But reaching and influencing employers is much more difficult than the new government seems to imagine and this scheme will inevitably have a good deal of deadweight – a lot of the businesses that claim the holiday would have been recruiting in any case.

The 1990s NIC holiday only cost £2 million a year (compared with original estimates of £50 million) and at its peak (1996-7) there were 4,000 beneficiaries. I’d expect the new scheme to recruit more unemployed people than this (because it isn’t restricted to those unemployed over two years) but to fall well short of the 20,000 plus a year the government expects.

3 Responses to Employers’ National Insurance Contributions ‘holiday’ starts

  1. How does the new health care reform bill being passed effect my existing health insurance?
    Sep 7th 2010, 4:40 pm

    […] Employers' National Insurance Contributions 'holiday' starts … […]

  2. Flexible New Deal
    Sep 9th 2010, 8:43 pm

    Have I missed something? Why is the East of England excluded? The place is a sh*t hole with high unemployment. We only need to mention a few places like Lowestoft and Ipswich…

  3. Spending cuts mean high unemployment is here to stay | ToUChstone blog: A public policy blog from the TUC
    Sep 10th 2010, 10:43 am

    […] the economy. But we have yet to see much evidence of what this means in practice. A three year national insurance holiday for business start-ups taking on staff (it would be interesting to know how many start-ups […]