Treating business like a piggy bank will end in disaster for the Tories

Britain needs imminent economic growth, or as tax receipts start falling, then borrowing will have to rise

‘It is not just the scale of spending we should be worrying about. It is revenues as well, in the form of tax’

The energy support package racked up bigger bills for the Treasury than anyone expected. The interest bill is starting to climb to worrying levels. And the cost of welfare payments are rising along with accelerating prices. We all typically overspend in December, but the Government went on a debt-fuelled spree unparalleled in recent history.

There were lots of short-term reasons why the UK recorded its highest level of public borrowing for the final month of the year in more than three decades.

Here is the real problem, however. We have not seen anything yet. So far, it is spending that is running out of control, while tax revenues are just about holding up. Over the rest of this year, that is going to change and, unfortunately, not for the better. In reality, the Conservatives are treating big business like a piggy bank, raiding it again and again for more cash. And yet major corporations are more mobile than ever. Without a plan for growth, tax receipts – especially from businesses – will inevitably start falling soon. And once that starts to happen, borrowing will hit genuinely eyewatering levels.

We already knew that 2022 was not exactly a vintage year for the British economy. We got through three prime ministers and four chancellors, while tax rises were punishing, growth stalled and inflation rose to levels not witnessed in 30 years. As if all that were not enough, we ended the year more in debt than ever. The public sector financing figures released earlier this week showed the Government borrowed £27bn over the course of the month, the most for a December since records began. That was £870m every single day, or £402 for every person in the country, or £823 for every working person. In just a single month. Most of us would probably notice if we had whacked an extra 800 quid on our credit card over the course of a month – and just because the debt is national, it doesn’t mean we won’t notice this either. Overall, that took total public debt to £250trn, or 99.5pc of GDP, a level last seen at the start of the 1960s when we were still paying off the cost of the Second World War.

There were plenty of obvious explanations for the figures. With interest rates soaring, debt interest payments are starting to go up significantly. The energy support package is expensive. And the cost of pensions, welfare payments, salaries and all the other stuff the Government pays for is inevitably starting to rise as well. The cost of getting by is rising for the state just as it is for the rest of us.

And yet, it is not just the scale of spending we should be worrying about. It is revenues as well, in the form of tax receipts. The Office for National Statistics figures showed the Government collected £74bn from us over the course of the month, compared with £70bn in 2021. It was an increase of 5.6pc, significantly less than the rise in inflation. There are already signs VAT is starting to wilt, with a rise of less than 5pc, only half the level of rising prices. Tobacco duty was down by 21pc – not many of us can still afford a tenner on a pack of ciggies – while self-assessed income tax was down by 4pc as the self-employed understandably started to give up, and stamp duty was down by 18pc as the housing market stalled. So far, revenues from businesses are just about holding up, with revenues from corporation tax chipping in £7bn for the month, with the contribution from “very large corporations” surviving better than expected.

The trouble is, the contribution from big business is now at risk. We are only 10 weeks away from the biggest rise in corporation tax seen anywhere in the developed world over the last 20 years, with the main rate set to rise from 19pc to 25pc. It takes Britain to levels charged in France and Germany, but without the infrastructure or public services to match that. Smaller businesses are, quite rightly, protected from that to some degree. But our major corporations will have to pay far more to the Treasury than they have in many years, and with only modest allowances for investment to offset those bills. We already have a warning of what can happen when you push corporation taxes up too quickly and too aggressively with the relative failure of the windfall levies on energy producers: they have raised only a quarter of the amount initially forecast, and companies such as Shell and Norway’s Equinor have already cut back on planned investments in the North Sea.

In reality, the Tories are treating big business as a source of income which can be called upon again and again without any consequences. Sir James Dyson, by far the UK’S most successful entrepreneur, has already forcefully argued that can’t continue for ever. The Labour Party is wooing business leaders, and with the Tories offering them pitifully little, it is hardly any surprise that bosses are listening. The Prime Minister Rishi Sunak and Chancellor Jeremy Hunt seem to believe that simply delivering stability, steadying the pound, and calming the markets will eventually deliver rising prosperity. That may have been enough amid the chaos of last September, but it is no longer good enough. The only way out of the mess is to start putting together a plan for growth that brings major corporations back on side. Without it, big businesses are simply going to drift away, and the last remaining source of substantial tax revenues to keep the country afloat will start to collapse along with everything else.

In truth, most of us gradually pay off our December debts during January and February. For the Government, there is no plan. By the time December 2024 and 2025 roll around, even the £27bn deficit last month will look relatively modest. The debt levels are just going to get worse and worse – with no end in sight.