The planned increase in National Insurance Contributions (NICs), scheduled to take affect in 2011, will be partly scrapped by the new Conservative-Liberal Democrat coalition government.
A statement released yesterday, outlining some of the policies agreed on by the two parties, confirmed: "The increase in Employer National Insurance thresholds proposed by the Conservatives will go ahead in order to stop Labour's jobs tax."

The news was welcomed by several leading business associations such as the Forum for Private Business (FPB). Chief executive Phil Orford said: "Small businesses did not want this tax on jobs because clearly it would have been a major barrier to staff retention and job creation and would have hindered economic recovery. For the majority of employers it would have proved to be an unpopular and unworkable tax rise. Although not perfect, the new coalition government's policy on NI is far better and provides a degree of certainty for business growth now and in the future."

Although the 1% employers' NI rise will still affect staff earning more than £20,800, the threshold at which they begin paying NI on employees earning up to that figure will increase by £21 per week, meaning most will be spared a major tax increase in return for retaining staff and taking on new employees.

The move was originally drawn up by the Conservatives following the backlash over Labour's planned NI increase for both employees and employers by 1%. However, yesterday's announcement also confirmed that employees will still continue to pay 1% more in NI.

The Federation of Small Businesses (FSB) also welcomed the new coalition government and the reversal of the 1% increase in employers' NICs. It also welcomed the adoption of the Lib Dem policy to raise the personal tax allowance to £10,000 as a long-term goal in a statement released yesterday.

FSB national chairman John Walker said: "We are pleased that coalition negotiations have listened to the business community and plan to reverse the proposed 1% increase in NICs for employers. A healthy increase in personal tax thresholds is something the FSB has been urging for some time. This will not only provide more disposable income for the lowest paid workers, but will also encourage businesses to take on more staff."

The new government has also promised an emergency Budget within weeks.