Posted by

Dr Adam Marshall, Director General of the BCC

22 Mar 2017

The government’s Spring Budget, which had been trailed as a non-event, accomplished precisely the opposite of what ministers had perhaps intended. The slim volume, intended as little more than a tidying-up exercise as Philip Hammond moves the main 'fiscal event' to the autumn, has come unstuck in less than a fortnight.

Much has been made of the fact that the Budget broke one of the cardinal rules of politics, by undermining a key manifesto commitment. When that dubious commitment not to raise income tax, VAT or NICs during the course of the parliament was made by George Osborne and David Cameron in 2015, I remember commenting with concern.

Our thinking at the time was that a five-year freeze on personal taxes was foolish for any Chancellor, meaning that any squeeze to follow would put pressure on business taxes and costs as a result. The battle we continue to wage against the up-front taxes and costs plaguing Chamber business communities predates the Conservative manifesto's tax lock, but has been exacerbated by it.

With HM Government still well short of a fiscal surplus, businesses of all shapes and sizes face two competitiveness-sapping trends that we will need to fight if we are to have the sort of post-Brexit business environment that gives Chamber member companies confidence to invest and grow.

The first is, simply, tax hikes. As we saw with the short-lived NICs rise for the self-employed and the equally unfortunate reduction in the tax-free allowance for dividends, the Treasury is sending negative signals to both sole traders and entrepreneurs. While providing some very short-term support on business rates, it has failed to grasp the nettle on some of the bigger problems caused by ridiculously high taxes on premises - which have stopped many places from achieving their potential.

We face more of these sorts of issues in future as the Treasury's need to bring in tax receipts comes up against our business communities’ need for a competitive environment where costs are not loaded onto firms up-front. Already newspapers are reporting that the Treasury has pensions tax relief in its sights to make up the £2bn shortfall from the failed NICs rise – which would enrage entrepreneurs who see long-term saving, rather than short-term profiteering, as the right way to benefit from a business.

The second is the trend whereby the state is shifting costs from itself to businesses. Digital quarterly tax reporting, checking the immigration status of employees or tenants, the closure of staffed support functions in favour of DIY websites - the list goes on. While businesses agree that the state needs to live within its means, that must not be on the back of wealth-generating firms, whose productivity can be stunted by endless form-filling and compliance. It’s true that businesses are willing to bear burdens where they see obvious benefits in terms of productivity, speed, and responsiveness. Yet few are willing to do so when they feel they are doing the state’s job for it.

All of this is a rather long-winded way to say that the Chancellor's Autumn Budget - which is closer than we think - must do better. As we said in our comments a fortnight ago, confidence-boosting investments in infrastructure and digital connectivity, front-line support for international trade, and more radical action on business rates is needed. So, too, is a far more fundamental review of how businesses and individuals are taxed – rather than more piecemeal changes that make some businesses and business communities winners, and others counting the cost.