The British Chamber of Commerce (BCC) has revealed today (15 February) that small firms in the UK believe that the planned National Insurance increase should be scrapped and replaced by a less damaging alternative.

In the BCC’s latest Monthly Business Survey, companies were asked what they thought were the Government’s most pressing issues. A considerable 41% answered that reducing the budget deficit should be the number one priority, while 22% believed that cutting legislative burden was most important.

When asked about the measures that the Government could take to reduce public debt, 36% said that they felt VAT would be the least damaging option for their business, compared to the 6% that voted in favour of National Insurance rises.

With National Insurance increases scheduled for April 2011, and with the next general election fast approaching, the BCC’s latest findings come at an interesting time for British politicians. David Frost, Director General of the BCC, commented:

“The message from business is clear. After an election, we have to get a serious grip on the country’s public finances and escalating debt. Cutting the deficit means making tough decisions on spending, like freezing the public sector wage bill and reforming public sector pensions.

“Raising a damaging tax on business, like NICs, will be counter-productive. It will mean fewer jobs and less tax revenue in the long-term. While businesses fully understand the need to bring down the UK’s deficit, they are clearly saying that using VAT would be a less damaging way to achieve this.”

Government forecasts indicate that raising VAT by 1% would create an extra £4.5 billion, while a 1% National Insurance increase would provide £5.1 billion.

The FSB have carried out research since September 2008 to document the ongoing impact of the economic downturn on small firms.

A comparison of that data suggests that the economic position of small businesses is now starting to improve after reaching a low point at the end of last year. Nearly a quarter (23%) of small businesses report that they are now experiencing an increase in trade, compared with 16% in February.

Further, the cost of finance is becoming less of a concern. By the end of last year, up to 40% of small businesses had cited the cost of finance as a big problem, but this figure has now fallen to 25%.

And it seems the these trends have in turn had a positive influence on confidence levels, with 57% stating that they were ‘quite confident’ about the future of their business. As a result, 68% of business owners are planning to grow in the next six months, with many hoping to invest in new products, more staff and marketing.

The FSB is now urging the Government to help sustain small firms by supporting apprenticeships, short-time working subsidies and increasing the thresholds before Income Tax and National Insurance contributions are payable.

John Wright, National Chairman, Federation of Small Businesses, said:

“Small businesses are naturally flexible and innovative in recessions and these figures show that despite the very many negative forces on them, they are being cautiously optimistic and are looking to expand. Although we are certainly not out of the woods yet, many small firms are seeing increased footfall and finding it easier to obtain crucial finance in the winter months, when things were at their worst so far.

“The Government must look to small businesses to build the post recession economy and help them employ more people and ease the bureaucracy and tax burdens which many still face.”