David Cameron has written to nearly two million businesses and charities to urge them to check whether they are entitled to a £2,000 National Insurance break which comes into effect this weekend.
The letters, on 10 Downing Street headed notepaper, are being paid for by the taxpayer rather than the Conservative Party, as they are being treated as part of the Government’s efforts to publicise its policies and not as party political literature.
The first letter was being personally hand-delivered by the Prime Minister to a small business in central London, ahead of a speech to the Conservative Party Spring Forum in which he will credit his own party for putting “more money in people’s pockets”.
The mailshot marks the end of a four-day national tour by the PM to raise awareness of the new Employment Allowance, as well as this weekend’s increase to £10,000 in the threshold at which workers start paying income tax.
But Labour claims that, despite these tax cuts, the average British household will be £974 a year worse-off by the time of next year’s general election as a result of tax and benefit changes introduced by the coalition.
F amilies with children have been particularly hard hit, losing an average of £2,073 a year if both parents are working and £3,720 a year if only one parent is in work, said shadow chancellor Ed Balls.
In his letter, Mr Cameron urged businesses to check whether they are eligible for Employment Allowance, which provides a reduction of up to £2,000 each on employers’ National Insurance contributions for an estimated 1.25 million companies, and to consider using the money saved to hire more workers.
Employers need only tick a box on their payroll software to claim the allowance, wrote the PM, adding: “This means £2,000 cashback on the cost of jobs that you can choose how to spend. I hope you will consider using it to take on more employees.”
Around one-third of all employers – 450,000 companies – are expected to be taken out of NICs altogether and because the payment is being made at a flat rate, over 90% of the benefit will go to small firms, said Downing Street.
Speaking to the Spring Forum, Mr Cameron is expected to say: “We meet on the eve of some important changes in our country. From tomorrow: millions of people will open their pay packets to find they are paying less tax – or no income tax at all – and that’s because we are raising the tax threshold. So you will not pay income tax on a single penny you earn up to £10,000.
“Also from tomorrow: almost every business and charity in the land that employs someone will get a tax cut too. I have written to more than a million of them to say: keep more of what you earn, grow, invest, take on more staff – because we are cutting your National Insurance bills by up to £2,000.
“This is all part of our long-term economic plan to create jobs, and give more people across our country the security and peace of mind that comes with being in work. So from tomorrow: more money in people’s pockets; more security for Britain’s small businesses; more peace of mind for families across our country. That’s because the Conservatives – the party of low taxes – are in government.”
Liberal Democrat Chief Secretary to the Treasury Danny Alexander said the new £10,000 threshold means that British workers can now earn more money before paying income tax than their counterparts in any of the other G7 countries – the US, Germany, France, Italy, Canada and Japan.
Mr Alexander described the hike of more than 50% in the threshold since 2010 – five times larger than in any other G7 state – as a “Liberal Democrat tax cut” and said the party would lift it further to £12,500 if it forms part of the government after next year’s general election.
The Lib Dem and Conservative sides of the Coalition have been tussling over the credit for the rise, which has seen the personal allowance upped each year since the formation of the Government, taking it from £6,475 in 2010 to reach £10,000 this weekend.
Mr Alexander said: ‘On Sunday we deliver the £10,000 income tax threshold – a Liberal Democrat tax cut worth up to £705 for over 26 million working people.
“Not only is this now the most generous income tax allowance in British history, but thanks to these changes the UK now has the best tax system for working people in the G7.
“These tax cuts are helping with family budgets and are a boost to job creation and growth. It’s no coincidence that Britain has record levels of employment and that we are the fastest growing economy in the G7. Our income tax cuts are not just helping people, but powering the recovery too.
“If the Liberal Democrats are in Government after the next election we will go much, much further and push the personal tax allowance to £12,500. That would mean a total tax cut of £1,200 since 2010, and give us the best tax system for working people anywhere in the developed world.”
Labour Treasury spokeswoman Shabana Mahmood said: “Labour called for a National Insurance holiday for businesses taking on new staff three years ago, so we welcome this belated move by ministers. We hope it is more successful than this Government’s previous National Insurance scheme which helped just 6% of the businesses promised.
“We need much bolder action to back British businesses so we can deal with the cost-of-living crisis and earn our way to higher living standards for all. Labour will cut business rates for 1.5 million business properties and set up a proper British Investment Bank to boost lending to small firms, which continues to fall under this Government.
“As for tax changes that affect families, analysis of figures from the independent Institute for Fiscal Studies shows that by next year households will be on average almost £1,000 a year worse off because of changes since 2010. Whatever out-of-touch claims David Cameron tries to make, the independent figures are clear: working people are worse off under the Tories.”