Business attacks tax plan

GOVERNMENT plans to recover student loans through the tax system will cost employers millions of pounds and will stop many firms recruiting graduates, tax experts and small businesses have warned.

The Teaching and Higher Education Bill as it stands allows the education secretary to change tax laws, passing responsibility for the collection of student loans to employers, through the Inland Revenue's pay-as-you-earn tax system.

But the Federation of Small Businesses is lobbying the government to think again. Stephen Alambritis, the FSB's head of parliamentary affairs, said he had written to the minister for small businesses, Barbara Roche. "Many employers will think even harder before employing a graduate," he said. The FSB had already been campaigning for financial aid from the government for the extra administration small employers have to do for the Child Support Agency and Council Tax Office.

Inez Andersen, tax partner at accountants KPMG, said: "Employers will have to do extra calculations, requiring new computer software and training, which means considerable capital expenditure."

The government estimates that setting up the new system will cost between Pounds 45 million and Pounds 90 million, with annual compliance costs reaching Pounds 42 million by 2010.

"What disturbs us," said KPMG tax partner Leslie Ferrar, "is the way this legislation is being introduced; not through tax law, as one would expect, but through an education bill which directors and their advisers would not normally look at."

A spokeswoman for the Department for Education and Employment acknowledged that "individual employers will not necessarily have caught up with the proposed changes". But she said there would be a publicity campaign.