John Longworth is an entrepreneur, Chairman of the Independent Business Network of Family Businesses, and formerly Director General of the British Chambers of Commerce and an MEP.
During the the Conservative leadership election, the Independent Business Network of Family Businesses focussed almost entirely on policies relating to supply side-stimulus and growth.
While it is a difficult sell for the electorate that fat cat businesses which make a handsome profit should be given tax breaks, it is actually fundamental to the wealth of the nation (and thus the provision of public services, jobs and incomes) that business innovate, improve productivity, and grow.
In order to do this there must be profits to reward, incentivise and provide the wherewithal for innovation and investment. High levels of Corporation Tax, which cut profits, are the antithesis of this.
While taxes on business may seem tangential to the issues facing the country, therefore, they are in fact fundamental to the UK’s ability to tackle those issues and the wellbeing of the British people: the economic strength of the nation will determine the buying power of our citizens; tax revenues to pay for public services depend on growth.
Growing the size of the economy by adding more people is a neat trick but adds nothing; unless more clever people equal more innovation and more wealth creation, it merely dilutes wealth and therefore makes the population poorer. Only improvements in productivity will grow national prosperity.
There is, of course, more to supply side stimulus than Corporation Tax. Deregulation can free up time and energy, especially for entrepreneurs and smaller businesses. Capital Gains relief encourages businesses to start up in Britain and provides reward for the extreme risk that many business people undertake to create enterprise.
Access to finance and investment – without loss of control and loss of intellectual property – is vitally important and much neglected in the UK. Manufacturing investment has underperformed competitor countries for 150 years. Intellectual property is often unnecessarily lost to foreign multinationals.
Innovation is key to productivity and growth. It requires profit, competition and investment. Competition comes both domestically and from trade. Rishi Sunak’s recent reshuffle demonstrates some understanding of this and is to be welcomed. But what of Jeremy Hunt?
While there is much to do, the thing that would make a difference in the upcoming budget relates to Corporation Tax. The Chancellor clearly appreciates its importance – he was once an advocate of a major reduction. Even the unreliable forecasters reckon that an increase will damage growth.
And the psychological anti-profit, anti-growth signal of a radical increase could be much more damaging than is imagined. If profitability is a prerequisite for innovation, investment, and growth, raising Corporation Tax is an attack on all of them. (This is something that Labour fail to recognise at all.)
There is also a question of the Capital Allowance super deduction and the first year special rate (SR) allowance, which should be kept and expanded whatever happens to the headline rate of Corporation Tax. Encouraging investment in plant and machinery is a vital ingredient of productivity, especially as the greatest productivity return from investment comes from investment in manufacturing.
Recognising that primary innovators and disrupters, the essential agents of growth, often start as unincorporated small businesses, Hunt should consider ways to extend reliefs from tax to these operators, whether it be capital gains super relief, Income Tax, or by other means such as carryover when these businesses eventually incorporate.
Similarly, with land and property so restricted and expensive in the UK., extending the scope to include commercial property, where that property is for industrial use, should be considered.
I must say that I feel like the UK changed without me noticing; growth now appears to be a dirty word amongst the Net Zero-obsessed political and media establishment, when I had assumed it was axiomatic that growth is good and essential and that the primary purpose of business is to make profit, a necessary activity in order to incentivise hard work and fund innovation and thus productivity.
I think it still holds that elections cannot be won outside the metropolitan bubble without heeding James Carville’s famous dictum, “the economy, stupid”. The forecasters have been proved wrong again and we now find that we can avoid recession, see inflation fall, and have interest rates and public finances under control. There is scope for Hunt to ditch the increase in Corporation Tax.
If the Conservatives are to win in 2024 (and they still can) an essential ingredient will be growth and prosperity. What the Chancellor does now with Corporation Tax could well determine the outcome of that election.