The Chancellor must encourage enterprise

Expectations have been dampened ahead of the Chancellor’s spring statement tomorrow. After moving the Budget to the autumn, Philip Hammond does not propose to make any major fiscal or spending decisions and will deliver what is essentially an economic progress report with some updated forecasts attached. Yet there are precious few set-piece parliamentary occasions for the Government to lay out its stall and even if the Chancellor has little of substance to impart, he should not waste the opportunity to make the Government’s priorities clear.

Foremost among these remains fiscal prudence. As the Chancellor pointed out on BBC One’s

The Andrew Marr Show yesterday, it is all well and good that various pundits are urging him to spend the better-than-expected tax revenues, but the country still has a national debt of £1.8 trillion.

Those who no longer consider it the proper ambition of governments to live within their means need to explain why future generations should pick up the bills for today’s consumers of public services. Mr Hammond is right to resist the calls to go on a spending splurge with money he does not have in order to win votes. That is Labour’s approach.

The best way to pay down debt is to encourage economic growth to boost Treasury revenues. To that end, lower taxes are the spur to enterprise. People who want to plug the fiscal gap by taxing businesses and the better-off more will merely impoverish everyone.

Ahead of his statement, Mr Hammond’s key aim seems to be to give the impression that austerity is over. But the main message needs to be that Britain is not only open for business post-brexit, but that the Treasury is doing everything it can to encourage enterprise. It has been reported that one announcement will involve a review of VAT. In his last Budget, Mr Hammond dropped a plan to lower the current £85,000 turnover threshold for businesses to register for VAT until at least 2020.

This idea should remain buried. But one problem is that the threshold acts as a barrier to business expansion, since a higher turnover triggers an immediate hefty tax bill. It would make more sense to taper the tax take above the threshold to mitigate the disincentive to take on new staff and invest in growth.

The political debate in this country too often revolves around spending on public services. The Chancellor needs to remind everyone that without the economic growth and jobs that small businesses in particular generate, there will be no money for them at all.