First, I declare my property and land interests, as per the register.
When voters returned a Labour Government, they may have believed they were electing a party with similar views to the Blair Administration in 1997. Then, business capital gains tax was lowered to 10%, £10 million entrepreneurs’ relief was introduced and there were no capital tax increases. Instead, we are heading back to the 1970s. We are going to be suffering the highest tax rates since the Second World War, unions are demanding ever higher wage settlements, and businesses are being used as cash cows rather than being encouraged to grow.
The main area of growth will be public sector spending. Handing £22.5 billion to the National Health Service is a measure that many voters would instinctively agree with, but, if it is not followed by a rigorous programme of reform, increased productivity and falling waiting lists, that money may well be wasted, like other funding settlements announced in the past. As the Times pointed out:
“What a familiar definition of Labour in power it is … and a Bill underwritten by employers and the asset rich”.
The Chancellor would argue that her Budget fulfils Labour’s promises of protecting the income of working people. It is clear at least who these working people are: those who work for other, richer people who now face an unappetising menu of fiscal disincentives to business expansion and job creation. Whatever she claims, the Chancellor did not once indicate that she planned to raise an additional £25 billion from higher rates of national insurance on employers.
Of the claimed £22 billion black hole in the nation’s finances, £9 billion is public sector employee pay, but can the Minister explain the mystery figure of “normal reserves claims” of £8.6 billion? I am not quite sure what that represents. What is bad for bosses in this instance will ultimately be bad for the workers the Chancellor is seeking to protect. Firms could well invest and hire less. According to the OBR, some 60% of additional costs will be passed on to employees. None of this is good news for Labour’s working people.
To continue on the tax theme, Labour have failed to explain how its tax hikes are anything but prejudicial to small businesses—enterprises that ought to form
the backbone of its growth strategy. It is hard to avoid the conclusion that Labour does not understand how growth is generated. The Chancellor seems to lack an instinct for timing. Over the four months before she delivered her Budget, she encouraged negativity to drive capital out of the country, particularly with regard to non-domiciled individuals who, contrary to the Treasury’s belief, contribute hugely valued tax revenue.
Speculation also depressed consumer expenditure and unsettled private sector confidence. In the days since the Budget, the Treasury’s reaction has been ponderous and largely defensive. It was not until five days after the election that the Chancellor grudgingly conceded the obvious truth that Labour had erred in promising voters that there would be no need to raise taxes in government.
More disappointing, however, than that broken but largely unconvincing promise, has been the Chancellor’s failure to live up to another pre-election pledge: that of running the
“most pro-business Treasury our country has ever seen”.
None of the Government’s fiscal measures suggests they are serious about creating the conditions necessary for private sector growth. The employers’ national insurance increase will especially penalise small businesses wishing to expand. Added to this anti-employer agenda, Labour’s package of strengthening working rights is expected to cost firms some £5 billion a year. This is a recipe for smothering growth.
Less defensible still are Labour’s punitive reforms to business and agricultural property relief. The Government’s proposed 20% hit at the point of inheriting a company will be sufficient to force the selling of many smaller companies’ businesses, yet the UK’s 5 million family firms provide some 14 million jobs, generating billions in tax revenues. Discouraging this wealth creation is a transparent act of economic self-harm. The end of inheritance exemptions for farmland will hugely damage the smaller family farm, particularly as the farmhouse and machinery element will quickly eat into the £1 million exemption. Such policies damage enterprise for meagre gains to the Treasury.
In contrast to the previous Government, notably few of Labour’s Front Bench have experience of building a firm or even working in the private sector. Their misjudgments manifest this lack of experience. The Chancellor seems not to appreciate that it is the industry of private citizens within a favourable regulatory environment that acts as the engine of growth and, eventually, of enhanced living standards and public services. In opposition, she paid lip service to such ideals; now, she must get down to business and deliver. In summary, this is an old-fashioned Labour Budget of the 1970s, and we know what happened to the country’s finances then.
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