Forcing employers to pay for loss of 10p income tax rate is unacceptable, says FPB

28 April 2008

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The FPB is calling on the Government to rethink its plans to force employers to pay for the loss of the 10p rate of income tax by increasing the National Minimum Wage. The move is likely to compel smaller businesses to put up their prices, and could lead to greater unemployment.

The Chancellor of the Exchequer, the Rt Hon Alistair Darling MP, and Enterprise Secretary John Hutton, have asked the Low Pay Commission (LPC) to consider changes to the minimum wage in order to compensate lower-paid workers, who could struggle following the removal of the 10p rate. The FPB believes strongly that employers should not be expected to make up shortfalls in the Government's policies on personal taxation.

"Any notion that the UK's businesses should be required to pick up the tab for the Government's hashed personal taxation policies is totally ludicrous. This is not even a stealth tax; it is a blatant attempt to retain revenues generated by the removal of the 10p personal taxation rate by forcing businesses to bear the financial burden through increases in the minimum wage. We cannot quite believe that it is being put forward as a serious solution," said the FPB's Chief Executive, Phil Orford.

In 2005, following a major study of 2,000 firms, the FPB wrote to the LPC warning that the minimum wage was hurting small firms. Just under 40% of respondents said that continual increases had already had a ‘bad' or ‘very bad' effect on their businesses, with 64% fearing that a further rise would hit them hard. The following year, a snap survey of 100 businesses found that 40% feared they would have to put up prices as a result of increases in the minimum wage. In addition, 70% said they would not be hiring additional staff.

The FPB believes that, in order to ease its impact on smaller businesses, the minimum wage should be set following sound economic calculations, not in order to achieve short-term political aims. The Government also plans to compensate low-paid workers through winter fuel payments and tax credits.

FPB member Carola Brown, of Ballards Brewery Ltd in Petersfield, Hampshire, said that a sharp increase in the minimum wage would heap further difficulties on her already-beleaguered business.

"I don't see why the burden should fall on the employer. It would make things extremely difficult for my business – which is facing a tough time as it is," she said. "The cost of grain has gone up by a third, hops has more than doubled and, in the Budget, duty was put up by 4p on a pint. The Government has completely cocked things up all round – and this will be another disaster for small businesses."

Forcing employers to pay for loss of 10p income tax rate is unacceptable, says FPB

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