By Jason Theodorou

The Chancellor’s decision to increase employers’ National Insurance Contributions (NICs) by an extra 0.5 per cent from April 2011 has been challenged by the British Chambers of Commerce.

The British Chambers of Commerce (BCC) wants the next Government to raise revenues by making a 1% increase in VAT, rather than making the planned rise in National Insurance contributions, which some have argued to be detrimental to the growth of British businesses.

David Frost, British Chamber of Commerce director general, said: “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”. He added that it was a difficult decision, but stated that it was necessary to be realistic in order to repair public finances.

Edward Rimmer, chief executive, Bibby Financial Services said: “The Chancellor’s announcement to increase National Insurance Contributions has come as a nasty surprise to small businesses across the UK, which continue to suffer the effects of the recession.

“The cost of employing somebody will increase by one per cent, making firms more reluctant to take on new staff…. a 1% rise in VAT would generate roughly the same amount of revenues as the National Insurance increase and be a less damaging tax burden for businesses, which are striving to recover from the economic downturn”.

The Government and the Conservatives have both denied that they will consider an increase in VAT.

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