Why are the Tories trying to destroy small business?
Last weekend the landlord of my village pub – its walls decorated with endless awards, quite rightly, for being one of the best in England – told me he faced a business rate rise of 450 per cent. We did not discuss whether he will have to close, or raise his prices so far to cover these extortionate costs that his custom evaporates. Either way, his staff would lose their jobs. His customers would lose a valuable and much-loved community resource. Consumer choice, that central feature of a freemarket economy, would shrink. Above all, a great enterprise built from very little after years of hard work would disappear.
Can a Conservative Government really be doing this? Can a marketminded Cabinet minister such as Sajid Javid really be pushing this through? Sadly, yes. And if the policy is not scrapped the Tory party will be severely punished. It may not worry while Labour has one foot in the grave, but that will not be the case for ever, and memories are long.
As I mentioned last week, the best way to raise revenue is to cut the rate of taxation: and it is pitiful that the Conservative Party, which used to understand that point, has so abjectly forgotten it. Another example emerged last week, with a report suggesting that the massive rises in stamp duty imposed by George Osborne during his lamentable period as chancellor mean the Treasury takes £500 million less each year, because the top end of the property market has seized up. If Philip Hammond does not rectify that in next month’s Budget he will need his head examined – not just because a stamp duty cut would bring in much more money, but because the tax falls with disproportionate severity on the south-east, and Tory constituencies.
That is also true of the business rate rise. Entrepreneurs are being asked to pay more because of a revaluation: and because of the boom in property prices since 2010, this means steep rises in southern England. The Tories also used to understand that small businesses are the main engines of growth, and where jobs are created. If this rate rise is implemented, those very generators of prosperity will be crushed. It is little short of insanity.
I sometimes think Government policy is drawn up by junior, Leftleaning civil servants and hardly vetted by anyone with a political brain before it is inflicted on the public. I fear this is especially true in policies affecting business. I saw a government document last week called “Building Our Industrial Strategy”, which I thought was a spoof – but it turns out to be genuine. It contains “10 pillars”. To the horror, I imagine, of almost every business person who has seen it, not one of those pillars includes a programme of deregulation and tax incentives to help businesses compete and grow.
There is some sensible stuff, though it seldom goes beyond a statement of the bleeding obvious. It talks about the importance of improving infrastructure, technical education and digital proficiency, and of relocating government bodies to depressed areas to help revive them. But, in addition to the absence of a deregulatory policy, the reliance is on what the state can do, rather than on the private sector: the document talks about becoming a more “innovative” economy without saying how; of how public procurement drives will improve supply chains; and how growth in underdeveloped areas will be achieved by public works projects. This is miles from the former Tory doctrine that all the state could do was create the right conditions in which business could flourish, rather than link arms and use public money – drawn from heavy taxation – to give business a push. Harold Wilson tried that, and it failed.
I don’t doubt that relocating great government agencies to deprived areas might kick-start their economies – but does it occur to the Tories that they might have won last week’s Stoke by-election if, when the coalition they dominated came to power seven years ago, they had declared Stoke an enterprise zone in which new businesses would enjoy VAT and corporation tax holidays for five years while they built a customer base? The only reason Stoke doesn’t put its crockery on the dining tables of the world any more is that it can’t compete: so a sensible government ensures a level of tax and regulation that lets it, and places like it, compete.
The ability to compete is central to economic health, and will become even more so after Brexit, when we have to engage with a wider world. Mr Hammond must look for radical ways to make business match-fit: and he can do that by cutting the tax and regulatory burden. It should swell the coffers as new businesses set up and old ones expand, and take people off benefits and into work.
A transitional fund is promised to cushion the effect of the rate rise. It isn’t enough. The rise should be scrapped while a better way is found to tax business – a way that does not penalise enterprise and close more pubs, shops and independent traders. Rates linked to turnover rather than notional property price would be fairer – it would stop huge businesses such as Amazon having rate cuts on their warehouses. Or, simply combine business rates and corporation tax.
The proposed rises are unfair, unjust, ill-thought out and damaging, economically and politically. The Tories must rethink their approach to business – and remember not least that you can’t tax a profit until you have allowed a business the chance to make one.