On growth
Some thoughts on next week's budget
Way back in a different political era (OK, about 7 months ago) we were preparing for a budget and wondering if any of the announcements would help or hinder our efforts to run consumer businesses in the UK.
Just beforehand, I wrote this post setting out some key things it would be terrific for the then Chancellor to consider, whilst trying to avoid the usual self serving list of “cut taxes that we pay and put up taxes that other people pay” ideas.
As we now approach the budget on October 30th, however, it feels like there is much more at play. This is not just any budget, it is the first from a new Government, the first from a party which has not been in power for a long time and therefore likely to be the one that defines their economic and investment strategy for some time to come.
What we know so far is that it is likely to be a very tricky balancing act for Rachel Reeves - trying to adhere as far as possible to manifesto commitments on taxation whilst also unlocking the levels of investment that are sorely needed in many parts of the economy.
What we also know, because we’ve heard it almost as many times as we’ve heard that Keir’s dad was a toolmaker, is that the defining objective of this government is going to be try to generate economic growth.
That has prompted a lot of the same self-serving stuff (“the way to unlock growth is to tax me less”) as well as some impressively 1980’s critiques from the right-wing press (“all economic growth comes from entrepreneurs like me, and if you put my taxes up I’m leaving the country”).
The reality is that what business needs in order to thrive and generate the GDP growth the government wants is more subtle and nuanced than that. So what will be on my bingo-card as I sit and watch the budget next week? Here are a few thoughts:
In taxation terms, there is, as I laid out in March’s post, merit in taxing success rather than merely taxing activity. That’s the main argument why Business Rates, for example, are such a damaging tax - you have to pay them as soon as you open your doors as opposed to something like Corporation Tax which you only pay once you’ve succeeded in making a profit. People might complain about both of those taxes, but the one you have to pay regardless of your success is the one which increases the risk of starting a new business and therefore hinders growth more.
This ‘tax success not activity’ mantra is also the reason to be concerned about the mooted increase in Employer’s National Insurance contributions. I’m as ready to accept the need for tax increases as the next person, and I don’t think increasing Employer’s NI is necessarily a breach of the Labour manifesto, but making it more expensive to employ more people must be least slightly contradictory to the aim of generating growth.
And while we are talking about encouraging businesses to employ more people, there is tonnes to do there. I find the proposed changes to employment law from a few weeks ago fairly balanced (we’ll have a detailed post on those in a few weeks) but I really hope the Chancellor takes this opportunity to scrap the ridiculous Apprenticeship Levy and replace it with something that actually encourages apprenticeships and training rather than making them an administrative nightmare.
Chatting to a friend in the housebuilding business a few weeks ago really brought home to me how much opportunity there is to be unlocked from simplifying and speeding up the UK’s ridiculous planning system, and looking at many retail and hospitality landlords struggling to get approval for obvious changes I can see how that would benefit our sectors too.
And finally, business is about raising money and making investments with the money you have raised. The Chancellor would be well advised to consider how to make both of those easier and more attractive in the UK. It remains the case that it is massively easier to raise money in the US than in the UK and I know several inspiring business leaders who have upped and left for the US just because of that. And whilst it might be inevitable that Capital Gains tax goes up, maintaining and enhancing those schemes which are designed to encourage business investment (full expensing, Entrepreneur’s relief etc) will be important ways of sweetening that pill.
As well as being a letter to the Chancellor, however, there is a key pre- and post- budget message for all of us in business too. Whatever changes come next Thursday will set the environment within which we do business, but it will fall to us to generate the economic growth that the country needs. The ingenuity and risk-appetite that will be needed in order to make our businesses grow will be the same regardless of what the Chancellor does, and so when we wake up on October 31st, it will fall to us to find the path forward for our businesses. There is an old business mantra that you should focus on the things you can control, and that will never be more true than after this budget.
P.S.
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