Thursday 15 September 2016 6:31 pm

Autumn Statement 2016: Businesses tell Philip Hammond to cut national insurance

Business leaders want Philip Hammond to cut the cost of employment in his first Autumn Statement as chancellor, rather than indulge in headline-grabbing measures like slashing corporation tax.

Accountants EY found 64 per cent of top decision makers at both UK firms and multinationals with a big presence here said reducing the cost of national insurance for employers, effectively a tax on jobs, would make the UK a more attractive place to invest.

Read more: Think tank wants corporation tax scrapped altogether

That compares to 43 per cent who called on Hammond to cut corporation tax and 39 per cent who wanted a VAT cut in November's Autumn Statement. Only one-quarter of financial services firms, who pay an eight per cent corporation tax surcharge, wanted the rate reduced, whereas two-thirds called for VAT to be scaled back.

Before he was ousted by Theresa May, George Osborne said he would cut corporation tax to 15 per cent to show the UK was still "open for business". The current rate is 20 per cent, but is scheduled to hit 17 per cent by 2020. Hammond has subsequently distanced himself from the policy, telling fellow world leaders at the recent G20 summit that Osborne's statement was simply one of many pre-Autumn Statement "suggestions".

Business group the British Chambers of Commerce (BCC) said smaller firms wanted to reduce "the input costs that hit businesses before they make a penny of profit, such as business rates and the cost of pensions auto-enrolment."

Unlike corporation tax, which is only levied against a company's profits, national insurance contributions and business rates are tied to factors such as employment and a business' physical footprint.

"It is those upfront costs that are stopping businesses from investing, as no matter what stage of the economic cycle we're at, or how your business is performing, you are paying these costs," said Suren Thiru, head of economics at the BCC.

Read more: Should Philip Hammond cut VAT?

While agreeing things like business rates reform and preserving the annual investment allowance were priorities for smaller and medium-sized businesses, Stephen Herring, head of tax at the Institute of Directors, said: "There is a perspective that the headline rate [of corporation tax] influences foreign direct investment into a country more than its tax reliefs and its tax systems. This is because it is more memorable and the the most-easily comparable."

Herring added that a one percentage point cut to corporation tax would reduce the government's income by around £1bn, while for a similar amount, the government could only afford a 0.2 per cent cut in employers' national insurance contributions. Such arithmetic could make Hammond think a tweak to corporation tax is the "more attractive" option.