Monday, 3 May 2010

Saving the Economy via Small Business Employment

So far this election I have succeeded in being relatively apolitical. Yes I went off on one about the Business Links and the lack of interest in whether they existed or not. But apart from that I have been pretty quiet.

Went to an excellent presentation by David Taylor, author of Naked Leader, and he said the blindingly obvious (and more than once).

If there are some 4-5 million small businesses in the UK, the simple solution to many of our problems is to get each one to employ one more person.

In my simple mind the impact is as follows:

  1. Unemployment is eradicated
    A reduction in government spending of say (4m x 100pw in benefits) = £20,800,000,000
  2. An additional income of say (4m x 200pw in wages) = £41,600,000,000
  3. An additional tax/NI to the government of say 20% of £41,600,000,000 = £8,320,000,000

If my simple maths is right then so far the Economy is better to the tune of £70,720,000,000 (without considering any knock-on effects)

Meanwhile the remaining disposable income of £33,280,000,000 has to be spent.

And if my old ‘A’ level economics is right there is what is known as a multiplier effect to the tune of three- or four-fold income – households spend the money with firms (and a bit of tax) who employ people and pay the wages that are spent with firms and a bit o tax and so the money goes round and round. So much for my simple lesson in Keynesian economics.

So applying the multiplier the real consequences of every small business employing one extra person are more like
  • Disposable income of 4 x £33,280,000,000 = £133,120,000,000
  • Tax to the government 4 x £8,320,000,000 = £33,280,000,000
  • Add the saving in unemployment benefit (£20,800,000,000)
  • And the total benefit to the economy is (the three figures above) £187,200,000,000
  • The total benefit to the exchequer is £54,080,000,000

(You might want to check my maths...!)

But still, not bad, eh!
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