Page last updated at 15:58 GMT, Wednesday, 9 December 2009

National Insurance rise criticised by business

CBI director general Richard Lambert
Mr Lambert said the chancellor risked harming job creation

The head of the CBI business group has attacked the chancellor's decision to raise National Insurance contributions, saying it will harm job creation.

Richard Lambert, the CBI's director general, said Alistair Darling had "made a serious mistake" at a time when the economic recovery was "fragile".

Under the planned change to National Insurance, both firms and workers will have to pay 0.5% more from 2011.

The British Chambers of Commerce was also unhappy with the proposed rise.


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David Frost, the BCC's director general, said it would "mean a brake on employment growth".

"While everyone understands the importance of restoring the public finances to a sustainable path, a tax on jobs is not the way to do it," he said.

Debt worries

Mr Lambert said more information was also required on how the government planned to reduce the public debt.

The government needs to take care not to put the UK's financial services sector at a comparative disadvantage internationally
Richard Lambert, CBI director general

"We are no clearer today as to how the government plans to reduce public expenditure," he said.

However, Mr Lambert did welcome some parts of the pre-Budget report, specifically the 1% pay freeze for public sector workers.

"We applaud the government's courage in beginning to tackle the thorny issues of public sector pay and pensions," he said.

Bank tax concern

Mr Lambert cautioned that the new 50% tax on bank bonuses above £25,000 could harm the City of London.

National insurance rates to rise by a further 0.5% from April 2011, raising £3bn a year
VAT to return to 17.5% from 15% from 1 January 2010. No other changes to VAT
One-off 50% tax on bank bonuses of more than £25,000
New 10% tax on income from patents to boost science development
1p increase in corporation tax for small firms to be deferred

"A headline-grabbing tax on bankers' bonuses may have populist appeal," he said.

"But the government needs to take care not to put the UK's financial services sector at a comparative disadvantage internationally. The threat of an exodus of talent is real."

This was a view shared by British Bankers' Association chief executive Angela Knight.

"Viewed from abroad, those foreign banks which reward their UK staff with contractually-agreed bonuses are likely to be the hardest hit," she said.

"London may well look to them now like a significantly less attractive place to build a business."

'Windfall tax'

Liberal Democrat Treasury spokesman Vince Cable said the bonus tax "is the worst type of gesture politics and a gift-wrapped invitation to tax avoidance".

Other business groups also gave the new bank bonus plans a cautious response.

Rod Roman of accountancy firm Ernst & Young said the tax would increase the costs of UK banks.

"Despite the chancellor's protestations, changing the tax on bonuses to banking staff will be seen as a windfall tax on banking profits," he said.

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