The chief executive of Hays, Alistair Cox, has some worrying news for those in the public sector who work through umbrella companies and are worried about the loss of their contract.

The government is widely expected to wield the axe on up to 750,000 public sector workers in the next 5 years but the private sector is highly unlikely to be able to create enough new jobs to absorb them.

One measure outlined by Mr. Cox to encourage private sector growth would be for the government to abolish employers’ National Insurance contributions. This would enable companies to take on more staff. The coalition has already gone some way towards easing the NI burden for small businesses start-ups outside the south-east by granting a 12 month NI holiday on their first 10 employees.

The Treasury currently raises around £55bn from employers NI contributions and its abolition would leave a gaping hole in the government coffers.

As if that news isn’t depressing enough, the CEBR has more doom and gloom for people in the north of England. The Centre has predicted that 10% of northerners will be unemployed in the next five years. Economic output in the North-west, north-east, Yorkshire and the Humber and the West Midlands will fall whilst London and the South will get a larger share.

Manufacturing centres such as the West Midlands are already suffering more than other areas. Although the situation has improved strongly in recent months, it is still well below pre-recession levels.

The recruitment market has been showing signs of improvement but a large proportion of that is due to employees changing jobs rather than an influx of new jobs being created.

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According to the Institute for Employment Studies (IES), the proposed hike in employer’s national insurance contributions will have a relatively small impact on the permanent employment market in the UK.

Under a Labour government, employers, limited company contractors and umbrella companies will see a 1 per cent increase in the amount of national insurance they are asked to pay, proportionate to their employee’s gross weekly or monthly salary.

Several leading recruitment bodes, including the REC, have already voiced their concerns to the government and a recent study by the Chartered Institute of Personnel and Development has suggested that recruitment could decline by as much as 15%, should the planned increase in NIC take effect.

However, the IES explained that while employers may not necessarily like the idea of a rise in PAYE taxes, the 1 per cent increase will have much more of a direct impact on the actual workers themselves, since many firms will simply offset the NIC increase against pay rises and other sundry employment benefits.

The Chartered Management Institute has recently announced the findings of a new study into the effects of the recession on SMEs and the wider employment market. According to the report, nearly half of the respondents feel that their business is still struggling financially following the  economic downturn, while two thirds say that the recession has had a damaging effect on staff morale.

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According to recent reports in the financial media, Britain’s banks are now approving 80% of small business loan applications, which should come as good news to limited company contractors and sole traders.

The British Bankers’ Association believes that this will encourage more SMEs to seek financial assistance from the banks rather than relying on short term cash reserves to finance the expansion of their business.

Stephen Pegge, from the BBA, said that lending to SMEs is one of the most important services that banks undertake. The current low lending rates mean that enterprises benefit from average interest rates less than half of those in force two years ago. He also suggested that a perceived credit squeeze had been putting enterprises off applying for business loans.

Small businesses are now cautiously optimistic that the economy will return to normality but many believe it will take up to 2 years before that happens.

A survey recently undertaken by Easynet Connect found that 58% of respondents think the economy will not improve significantly for another 12 to 24 months, whilst 29% have delayed their business plans until after the upcoming election.

The proposed hike in employer’s national insurance is still a major worry to many businesses, including umbrella companies, who employ workers on a mass scale. The Tories have once again confirmed this week that they will scrap the increase in NIC if they win the election. They have however refused to rule out a rise in VAT and their headline grabbing ‘review’ of IR35 may still come to nothing.

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