Encourage the UK’s sole traders to create jobs, says Chamber

A report released by the British Chambers of Commerce (BCC) calls upon the government to encourage sole traders to take on their first employee by exempting them from burdensome employment legislation. The report's findings are based on a new survey of more than 1,000 business owners, who identified new pension requirements, dismissal rules and sickness absence as the top three barriers to taking on their first staff member.

Nearly one in three businesspeople (32%) identified forthcoming pension requirements as the top barrier to taking on staff. The changes outlined in the Pensions Act 2008, which all businesses must begin complying with between 2012 and 2015, appear to be discouraging significant numbers of sole traders from considering taking on employees. Businesses will have to pay a 3% minimum pension contribution towards the retirement savings of staff. For many owner-managers, this will bring with it indirect costs in setting up pension schemes, and changes to payroll systems.

In addition, a quarter (27%) of sole traders identified the dismissal process as a significant or total barrier in taking on staff. This suggests that even before hiring their first employee, sole traders are concerned about the inability to sack employees if they aren’t right for a job, or if there is a fall in demand for their goods or services. Implicitly linked to this, more than a quarter (27%) of sole traders found sickness absence as an obstacle to growing their business.

The report also found:

• One in three survey respondents who wanted to grow their business said that exemptions from employment law would encourage them to take on their first staff member.
• One in two sole traders said a reduced or special rate of employer National Insurance Contribution would incentivise them to hire.
• Only 6% of businesspeople were unemployed immediately before setting up on their own.
• Newer business owners have greater ambitions to grow and create jobs. For those starting their own business, the ambition to take on staff decreases the longer a business has been in existence. Over 45% of sole traders operating for less than six months had ambitions to increase their staffing levels by half. This drops to a fifth among businesses that have been operating for more than three years.

Commenting on the report, Maresa Molloy, Head of Policy at Liverpool Chamber of Commerce, said:

“The proportion of enterprises with no employees has increased each year since 2004. There are currently over 3.6 million sole traders, and while not all of these people want or have the potential to expand, some do. Businesses consistently state that employment regulation prevents them from taking on more staff. In an environment of high unemployment, and weak economic growth, the government has to look at how it can free up these business owners and allow them to grow their enterprises.

“Our research shows that new entrepreneurs are more ambitious, this must be harnessed early on. Exempting new businesses from 2012 pension reforms in their first three years or until they have more than ten employees would remove the one of the biggest barriers to job creation. In addition, sole traders tell us that a reduced rate of employer National Insurance Contribution would encourage these individuals starting out on their own to take on their first staff member.

“While the government has created initiatives to reduce the burden of red tape, some of these measures don’t go far enough. The NI holiday created for start-ups is being used by fewer than 3,000 firms, suggesting it needs to be more flexible to allow businesses to benefit. In addition the government’s move to exempt micro businesses from new regulation fails to take into account the vast amount of existing legislation. We have to get conditions right for these business owners if we want more jobs, greater investment, and stronger economic growth across the UK.”