Government's big idea for regional growth is a flop - Onwurah

Chinyelu OwurahOne of the Tory-led government's big ideas to promote growth in the North East has flopped according to the latest figures uncovered by Labour.

In his first Budget last June, George Osborne announced that a £1 billion 'national insurance holiday' to help new business starts-ups would help 400,000 new firms outside London, the South East and the East of England and could create 800,000 new private sector jobs.

However, since the scheme was launched last September just 326 firms have benefitted in the North East.

And nationally, low take up of the scheme means that it will cost more to run than the total financial benefit it gives to business.  Only 5,137 firms across the country have applied for a NI holiday. With an average benefit per business of £2,000, that means around £10.3 million has been paid to businesses - less than the £12 million the Treasury says the scheme will cost to administer.

Chi Onwurah MP, Labour's Shadow Business Minister and MP for Newcastle Central said:

"George Osborne's big idea for regional growth has been a flop. The National Insurance Holiday is no substitute for a real plan for growth in the North East.

"As time goes on, the Tory-led government's decision to axe One North East and cut spending for regional development looks increasingly wreckless.

"The Regional Growth Fund is over-subscribed and being spread thinly across the country. The government must come forward with a proper strategy for growth for the North East."

Ed Balls MP, Labour's Shadow Chancellor, said:

"After a week when we learned the economy has flatlined over the last nine months, these figures are another embarrassing setback for the Chancellor.

"George Osborne hailed this flagship policy last year saying it could create 800,000 private sector jobs. But it's turned out to be a total flop with just 1 per cent of the 400,000 businesses George Osborne said would benefit taking advantage.

"Families and businesses who are being hit hard by the Conservative-led Government's reckless economic policies will be shocked to find out that the administration costs of the scheme are bigger than the amount paid to businesses to help create jobs.

"Having choked off last year's recovery with a VAT rise and cuts which go too far and too fast it's now clear that George Osborne needs to get his head out of the sand and change course. He urgently needs a plan for jobs and growth to get the economy moving again and get the deficit down for the long term.

"Temporarily reversing the VAT rise, which is costing families with children £450 per year, would give our stalled economy the jump start it urgently needs. The government also needs to get the banks lending to small businesses and use the funds raised from repeating the bank bonus tax to get young people off the dole and into work."

ENDS

Editor's Notes

1. Announcing the policy in his first Budget George Osborne said 400,000 businesses would benefit. The Budget Red Book costed the policy at £940 million and a subsequent Treasury document estimated that the policy would help around 800,000 workers:

"For the next three years anyone who sets up a new business outside London, the South East and the Eastern region will be exempt from up to £5,000 of employer national insurance payments, for each of their first 10 employees hired. We aim to have the scheme up and running by September, but any qualifying new business set up from today will also receive help. And 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."

George Osborne, Budget statement, 22 June 2010

http://www.hm-treasury.gov.uk/junebudget_speech.htm

"It is estimated that around 400,000 employers will claim the relief with regard to around 800,000 employees."

Impact Assessment of the Regional Employer National Insurance Contributions Holiday for New Businesses, 23 September 2010.

2. The Treasury has estimated that the administration costs of the scheme will be £12million and that the average benefit per business will be around £2,000

"It is anticipated that around 240 extra full time employees are required to operate the scheme over three years, and given the volumes of work expected, and the appropriate staff wage rate, the estimated cost to HMRC is around £12m for the duration of the scheme.... The average benefit per business is around £2,000 and the total benefit around £940m."

National Insurance Contributions Bill Explanatory Notes,

http://www.publications.parliament.uk/pa/ld201011/ldbills/039/en/11039en.pdf

3. Treasury Minister David Gauke has revealed that just over 5,000 businesses have benefitted from the scheme in the first ten months - supporting just over 10,000 jobs:

"Up to 8 July 2011, HMRC had received 5,137 successful and 163 unsuccessful applications for the NICs holiday from new businesses."

Parliamentary answer from David Gauke MP, 19 July 2011

http://www.publications.parliament.uk/pa/cm201011/cmhansrd/cm110719/text/110719w0002.htm#110719115000158

"Analysis suggests that on average each business will claim for approximately two employees."

Parliamentary answer from David Gauke MP, 28 April 2011

http://www.publications.parliament.uk/pa/cm201011/cmhansrd/cm110428/text/110428w0001.htm

4. At the time of the June 2010 Budget the scheme was criticised by Robert Chote, the Director of the Institute for Fiscal Studies and now the head of the Office for Budget Responsibility:

"The National Insurance break for start-ups looks complicated, potentially prone to avoidance and oddly targeted."

Opening remarks by Robert Chote, IFS post-Budget briefing, 23 June,2010

http://www.ifs.org.uk/budgets/budgetjune2010/chote.pdf

5. But the policy was hailed by David Cameron:

"Add to these our cut in the small business profits rate and the fact we have waived national insurance contributions for new businesses in most areas of the country and you have the conditions to breed confidence and investment and boost productivity for the long-term."

David Cameron, speech, 25 October 2010, http://www.conservatives.com/News/Speeches/2010/10/David_Cameron_Creating_a_new_economic_dynamism.aspx

6. More information on the scheme, which came into effect on 5 September 2010, can be found in the HM Treasury press notice here:

http://www.hm-treasury.gov.uk/press_40_10.htm