Schemes to help UK firms fund new staff are not delivering

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Half-way through the three-year scheme which could save new employers up to £50k in national insurance payments, less than 4% of the 400,000 firms expected to benefit have signed up.

Another job creation programme, the Regional Growth Fund, has recently been found to have supported only 14% of the 300,000 jobs it was intended to ‘safeguard’.

Both schemes were aimed at promoting businesses and jobs across the UK. The Regional Growth Fund is spending £2.4 billion across England between 2011 and 2015 and is intended to protect or create hundreds of thousands of jobs.

The Regional Employer National Insurance Contributions Holiday for new businesses is available to firms which commence operating between 22 June 2010 and 5 September 2013, and which are based outside the south-east of England.

Speaking about the poor take-up of the national insurance holiday scheme, Roy Maugham, tax partner at accountants UHY Hacker Young, said: “Government estimates for how many businesses would apply to take part have proved to be wildly optimistic.”

Government encouraged to broaden scope of the national insurance holiday

The Federation of Small Businesses wants eligibility for the national insurance holiday scheme to be extended to firms already operating, and currently employing less than four people. There have also been suggestions that it could be extended to cover the entire country, taking in the south-east and in particular, London.

Either of these actions could help it achieve the initial predictions of supporting the generation of up to 800,000 jobs, at an average of 2 per new business. With less than 14,000 businesses actually taking part at the half-way point, it’s looking like the scheme may only be credited with less than 60,000 jobs over its three years.

Not only is the take up alarmingly low, it’s also declining. In the last quarter of 2011, 4,300 new firms applied for the holiday, but that fell to just 2,605 in the first three months of 2012. The scheme is currently predicted to cost the government £105 million in reduced national insurance revenue.

Regional Growth Fund is also under-performing on jobs

The National Audit Office report into the Regional Growth Fund finds that is has not allowed firms to benefit from as many new jobs as forecast. The watchdog found: “The Fund has not optimised value for money because a significant proportion of the £1.4 billion was allocated to projects that offer relatively few jobs for the money invested.”

The money is going to firms of all sizes and stages in their life-cycle, where it is costing anything from £4,000 to £200,000 to create a single job. An additional £1 billion is now being put into the fund to continue the support for businesses.

The head of the National Audit Office, Amyas Morse, said: “To achieve better value for money from the further £1 billion now available, the government should develop more challenging targets for the number of jobs projects should generate relative to their cost.”

Other measures being recommended to improve the effectiveness of both the Regional Growth Fund and employers’ national insurance holiday is better marketing to both existing firms and entrepreneurs planning a start-up.

Talking of the gap between the expected and actual take up, Roy Maugham said: “Either the Government overestimated the number of eligible new businesses that would be set up or it simply isn’t getting the message to businesses that they can benefit from the scheme.”

 

References:

National insurance holiday scheme not working: http://www.telegraph.co.uk/finance/yourbusiness/9265236/Failing-NICs-holiday-scheme-in-steep-decline.html

 

NIC scheme eligibility (HMRC): http://www.hmrc.gov.uk/paye/intro/nics-holiday/eligibility.htm#1

 

National insurance cost: http://www.publications.parliament.uk/pa/cm201213/cmhansrd/cm120514/text/120514w0002.htm

Regional growth fund: http://www.bis.gov.uk/rgf

National Audit Office press release: http://www.nao.org.uk/publications/press_notice_home/1213/121317.aspx

This is a guest post by Jasper Martens from Simply Business who offer a range of Invoice Finance solutions.

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