Articles and Speeches

The 2007 Budget - A Business Perspective
21-Mar-07, Spectator Article.

This Budget is bad for Business
Most entrepreneurs and businessmen are well aware that the Chancellor, Gordon Brown, believes in high taxes for people and high spending by Government. But we must never forget that business is the engine of the economy that creates all of the jobs, incomes and taxes that pay for the good causes we wish to support in a caring society.

So there is no doubt that increased investment in education is to be welcomed if it delivers a better qualified and more productive workforce. As with business investment, the problem comes when the money does not get the results that we want.

Time to Judge the Chancellor on results
As an entrepreneur for more than a decade before entering Parliament, I tend to judge policies by the benefits they bring - as do most successful managers, directors and business leaders. They are acutely aware that the decisions they make determine the long term success or failure of their business. It is time to judge the Chancellor in a similar way when it comes to his economic policies and their effect on business, competitiveness and productivity. It’s all too easy for politicians to get away with causing pain and misery to millions with ill-thought-through policies and without any objective assessment of their results.

Announcing that you are spending record amounts of money on schools and hospitals just isn’t enough. Patients must be treated more quickly and recover more quickly; young people must leave school with genuinely better grades than before and better equipped to take up jobs. And, if we really care about the least well off and most vulnerable in our society, it is vital that business is free to create the wealth required to keep our economy healthy and growing.

.....So what’s he done?
Personal Tax
The Chancellor has attempted to capture people’s attention with a headline grabbing cut in income tax rate of 2p in the pound. But his abolition of the 10p tax threshold and changes to national insurance contributions mean that few will be better off, and those on lower incomes will be worse off. This is a tax con, rather than a tax cut.

Shifting the tax burden to small businesses
He’s also announced a cut in corporation tax on business profits to 28p because businesses have been fleeing the UK high tax regime. However in a bizarre twist he is increasing tax on small businesses to 22p – a rise of 16%! Surely this is the wrong way around as we should be encouraging small and medium sized businesses who make up more than 99% of all enterprises.

As ever, with this Chancellor, the devil is in the detail and once the small print is read with regard to capital allowances it is almost certain that the overall effect of these measures will raise the burden of business taxes.

Whilst big businesses look at first glance to benefit from a cut in corporation tax, they are more than making up for it in other ways. Measures including landfill tax rising 22% and a reduction in tax relief for unused properties mean that overall business taxes will rise by £1bn next year and £1.8bn the following year.

Skills and Education for business
The freeze on extra money for education is worrying because, as every employer knows, it is alarmingly difficult to find staff with the right skills and education. It is now even more important that the existing investment in education is channelled to where it will have the best effect – it is not enough just to throw money at a problem and hope it will get better.

Missed Opportunity to increase productivity and competitiveness
Inflation is at its highest level for 16 years; productivity is lower than in France, the USA and the G7, and continues to fall; our trade deficit is set to rise to the highest level ever; and take-home pay in real terms is falling.

With this Budget, the Chancellor had a golden opportunity to reverse our economy’s downward trend in competitiveness. Britain was the 4th most competitive economy in the world in 1997 – it is now a lowly 10th. Had he announced measures which would have released productivity (now half the rate it was 10 years ago) and reduced the tax burden on business, our competitiveness could have been enhanced and our economy would look a lot healthier in the long term.

Instead, Brown has failed to seize this golden opportunity and has saddled us with another budget which undermines small businesses in particular, and further undermines our economic competitiveness.

After inheriting a golden economic legacy, we must not forget that Brown is the architect of the problems and it will be interesting to see how he will argue that he holds the solution, should he become the next Prime Minister.