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Labour is today calling on the Chancellor George Osborne to give small firms a New Year tax break to help create desperately needed jobs in the private sector.

New figures slipped out by the Treasury reveal that in its first year of operation the government’s flagship national insurance holiday for new businesses has supported just 2.5 per cent of the businesses promised help by the Chancellor in his first Budget. The scheme, which has a budget of almost £1 billion, is also set to cost more in administration and red tape than it has so far given in support for new businesses.

Labour says the government should use the hundreds of millions of pounds of unspent money allocated to the scheme and extend the tax break to all existing small firms, with fewer than 10 employees, who take on extra workers in every region and nation of the UK. The national insurance tax break would apply for a year for each additional employee taken on.

In his first Budget George Osborne said his policy would benefit 400,000 businesses but the Treasury’s own figures show that just over 10,000 firms received support from the scheme between September 2010 and November 2011.

Just £6 million was paid out to small firms to support 12,400 jobs in the period for which figures are available, but the Treasury estimates that the administration costs of the scheme will be double that at around £12 million.

Owen Smith MP, Labour’s shadow exchequer secretary to the Treasury, said:

“Small firms are the lifeblood of our economy, but they have been badly let down by this Conservative-led government. Spending cuts and tax rises that go too far and too fast have crushed confidence and choked off the recovery well before the eurozone crisis.

“The one flagship policy that could have made a difference has been a total flop, supporting just one in forty businesses who were promised help. And shockingly, the government is set to spend twice as much on admin costs than it has so far paid out in support to businesses.   

“At a time when small businesses and our flatlining economy need all the help they can get, George Osborne should now extend the scheme so thousands more companies can benefit. As part of our five point plan for jobs Labour is calling for this tax break to be extended to support all existing small firms who take on extra workers. This will help small businesses grow and create jobs and it can be paid for using the money left over from the government’s failed scheme.

“Out of touch Ministers need to wake up to the jobs and growth crisis facing our country in 2012 and start doing something about it. They also need to realise that more people out of work on benefits just makes it harder to get the deficit down, which is why the government is now set to borrow a staggering £158 billion more than they planned.”

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