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!

16 comments:

Sienna White said...

when is a billion a billion?

Jim (BL) said...

Another argument for for against keeping the Business Links??

Unknown said...

Jim - did you post to me just a minute ago re "the book"?

RC

Unknown said...

Jim

This is not an argument in any particular direction - just looking at the impact that the small business sector can have on employment stats and the sick treasury. David Taylor's comment (which stimulated this post) just got me thinking. A penny for your thoughts?

Jim (BL) said...

Not me.
Jim

Karin H said...

A same kind of multiplier can be used to solve the growing decline of farmers and therefore the increase of imported food:

If consumers are willing to pay 2p more for a pint of milk and that 2p ends in the pocket of the farmer (not the supermarket's, not the factory's and not the government's pocket) would we really drink less milk?

Fill in the same for 2p more for local veggies, local meat etc etc etc

Those 2p per pint/per veg would increase a farmers etc income = more profit = more employment = more tax = less deficit (also less difference between import/export)

Just my 2p ;-)

Karin H (Keep It Simple Sweetheart, specially in business)

Bamps said...

Based on this argument, then perhaps NI and PAYE contributions should be at zero cost for the employer for say 6 months as a reward for getting them off government benefits? Or have I missed the point?

Unknown said...

Spot on - anything that puts money in people's pockets means they normally go out and spend it and that creates demand and more jobs...

Marjory D said...

Werae onto something here. Simple economics.
Maybe it is time to start a political party!

Craven for President and Chancellor of the Exchequor!

James said...

Vince Cable is a hypocrite

Jenny Angel said...

Craven for President!

Andy Green said...

Some SIMPLE research could sort this out. I am not suggesting that Craven Business School does it. What about Warwick Business School?

Jim (BL) said...

Another argument for for against keeping the Business Links??

Bamps said...

Based on this argument, then perhaps NI and PAYE contributions should be at zero cost for the employer for say 6 months as a reward for getting them off government benefits? Or have I missed the point?

Robert Craven said...

Jim

This is not an argument in any particular direction - just looking at the impact that the small business sector can have on employment stats and the sick treasury. David Taylor's comment (which stimulated this post) just got me thinking. A penny for your thoughts?

GR said...

Top 1% of entrepreneurs create 40% of new jobs http://bbc.in/dLgkT7