The real enemies of business

Chris Nicholas

Conservatives claim “helping all Britain’s hard working businesses” is their essential rationale. In contrast, Labour is then portrayed as by definition anti-business.

But, heavily favouring the City, ‘big business’ and international capital, Conservative policies have in reality been unsupportive, even detrimental for most British businesses. Yet Labour now risks being overtaken by economic recovery and doubts about its economic abilities. It needs to directly challenge Conservative claims to both allay voters’ fears and bring business onboard in Labour’s economic strategy.

Business indisputably wasn’t helped by the government making recession deeper and longer, undermining demand, earnings and growth for five years. Already parlously low investment shrank by a quarter, productivity fell and business has faced a crisis in the availability of finance. Public expenditure cuts are meantime eroding business’s essential enabling springboard and buttressing public services.

For Conservatives this is creating “the conditions for future prosperity”. Central to their claims is reducing headline corporation tax from 28 per cent to 20 per cent by 2015. But this favours the wrong businesses and neglects the needs of British business generally.

The largest five per cent of companies get 85 per cent of the benefit, worth £7.5bn a year. Yet the small company tax rate and marginal relief for medium-size companies have been frozen and are being abolished entirely from 2015.

Meanwhile, all businesses have seen increases employer national insurance and their own VAT as well as big cuts in capital allowances. These cost British business £8.6 million a year; and together with other tax changes, it’s overall worse off by £1-1.5 billion a year.

The tax burden has simply shifted from bigger to smaller companies; and from back-end profits to front-end costs, particularly employment. Yet given current tax rates, labour not profit taxes have the more detrimental effect on British business; and most competitively penalise activities here in Britain.

Systemic tax avoidance then further favours large companies over smaller ones and the least over most sincerely committed to productive activities in Britain. Trumpeting the opposite, the Conservatives have reinforced and extended legitimated avoidance.

General corporation tax cuts are also neither effective nor cost-effective in encouraging business. The benefits are dissipated, mostly going where they make no difference or bring no counter-veiling benefit, and/or don’t translate into investment in productive activities in Britain. Equally, they misconceive where back-end profit taxes figure in business’s equation of markets, capabilities, costs and returns. Money is better used relieving front-end tax costs, targeted tax relief or direct investment in business.

Yet the City and finance remain favourably taxed. Most financial services are exempt from VAT and the government has actively derailed European moves towards a financial transactions tax. They then benefit from advantageous corporation tax treatment; yet are the epicentre of tax avoidance.

Overall the Conservatives have leant the already unequal playing field even further in favour of finance, big multi-national business, international capital and rentier or febrile activities and against smaller, domestic and substantively productive British businesses. This actually compounds coring out the economy.

Meanwhile, the government has bitten deep into all facets of business support and enablement, undermining capabilities, performance and future opportunities; while other countries are already doing far more.

Key public-private drivers of business and innovation – research and development, investment in new technology and capabilities, skills and training, and direct public investment – have seen deep cuts. Already inadequate infrastructure expenditure has fallen sharply. Business development and support structures have been dismembered. And the government has abrogated responsibility for any meaningful strategic leadership or industrial policy.

Yet the City and finance have seen unprecedented bailouts and ongoing public investment. Notwithstanding recent improvements, the money has not then been lent on or reinvested as hoped. And bank reform has been emasculated, leaving an even greater market stranglehold than before.  Again and again, the Conservatives are found on the side of dominant incumbent companies, vested interests and finance.

By hammering the critical fault-lines between the favoured few and generality of hard-working businesses, Labour can and should directly challenge the Conservatives over who is really on the side of British business with  a positive strategy of economic enablement and empowerment. Here, helping business, sound economics and greater fairness go hand-in-hand.

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