Independent research conducted by the Manchester Business School has discovered that the real cost of compliance with the new personal accounts system could rise to a staggering £1.2 billion for business a year instead of the DWP’s estimated £254 million in year 1 and £90 million thereafter.

Francis Chittenden, Professor of Small Business Finance at the Manchester Business School, said:

“This is a serious issue for small businesses. The government plans to introduce Personal Accounts at a time when it is undertaking an exercise to reduce admin burdens. The DWP proposals risk substantially increasingly the amount of work that small firms have to do on behalf of government.”

The Personal Account system requires employers to deduct contributions from employees and supplement these with 3 percent employer contribution. This creates a significant administrative burden that will fall especially heavily on small firms.

In addition to an increase in administrative costs, small firms will also see a significant rise in compliance costs.

David Frost, Director General of the British Chambers of Commerce, said:

“This miscalculation by the government on the actual costs of the personal accounts system could have a huge impact on business. We have always argued that the government needs to help business through the transition process but they need to recalculate their assumptions immediately.”