Chancellor Rachel Reeves says there was no alternative to her Budget taxes. She is wrong, says TERRY MURDEN
Three years ago Boris Johnson stood before delegates at the CBI’s annual conference and imitated the sound of an accelerating car as he spoke optimistically of an economy primed for growth. Without resorting to similar theatrics, Rachel Reeves and her Labour colleagues were swept into power in the summer on the promise that the economy would soon be firing on all cylinders. Instead, it is is stuck in the slow lane and in danger of needing some roadside assistance.
After constant reminders of the need to repair 14 years of Tory failure, there were expectations that that the 30 October Budget would set the tone for growth. The disappointment and frustration at what emerged has been encapsulated in the address from CBI CEO Rain Newton-Smith to this year’s conference in which she warns of measures that will hit profits, investment and jobs. Far from creating the conditions for growth, Ms Reeves is in danger of pushing a spluttering economy into a new year recession.
Frankly, Labour needs a new model. From farmers to restaurant chains, there is barely a sector that does not feel threatened by the government’s tax raid. Many of those that survived Covid and inflation thought the second half of this year would bring about a recovery. That has been dashed by a budget which needed to plug gaps in the public finances but did not need to do it by punishing many of those who would help sustain that recovery.
Ms Reeves has been fond of saying how she spent many months consulting with business leaders during her time in opposition. If that’s the case, then she clearly hasn’t been listening. Or least she may have been listening only to those big businesses and City institutions that inhabit the world she knew well from her time at the Bank of England.
Getting the pension funds and private equity folk on board with plans to re-boot investment in infrastructure may be a good thing, but they don’t run corner shops, B&Bs and beauty salons. Many big businesses have said they can absorb her hikes in NICs, but they tend to be those with relatively low numbers of staff. Companies employing thousands in low margin sectors, such as retail and hospitality, will take a huge hit. This means the tax hike is not being treated fairly.
Aside from NICs, the other big setback were changes to inheritance tax. While the changes have focused on farming, similar changes to business property relief make it difficult to pass on businesses to descendants.
The tax-free arrangement which had allowed for business continuity from one generation to the next was swept aside by Ms Reeves imposing a £1 million ceiling, after which there is a liability to pay 20% IHT on the value of shares being passed on.
One leading businessman has warned that this will have a devastating effect on family businesses, burdening them with debt or requiring them to sell a portion of the shares in order to pay the tax bill. In many cases they will be forced to shut up shop.
The Chancellor, far from laying the foundations for growth has inflicted pain on those business that she is relying upon to create the conditions she speaks about.
Evoking Margaret Thatcher’s famous saying that “there is no alternative” she tells the CBI that there were no other means to tackle the “black hole” and fix the National Health Service. Poppycock. Her admission betrays a lack of imagination and a failure to use some other options that her son-of-a-toolmaker boss could put at her disposal.
She could have announced selective and temporary cuts to VAT which would not only ease business costs but help to stimulate consumer demand. A similarly tiered system of corporation taxes would ensure all businesses were not being treated in the same way. The IHT and NICs changes may have been justifiable, but they were badly executed. The unintended consequences were a serious miss and will prove costly.
A Chancellor who brags about the number of initiatives and meetings she’s organised has promised a reform of business rates but early action is less certain. There needed to be a fresh and innovative look at how the National Health Service is funded and organised, including better use of IT systems. There was a case for raising income tax thresholds earlier in order to give the public hope of a better things to come.
It’s simply not good enough for a Labour government to pretend it is rebuilding the economy while taking a sledgehammer to the walls that business is trying to put up.
Terry Murden was Editor and Business Editor at The Sunday Times Scotland, Business Editor at The Scotsman, and Business and City Editor at Scotland on Sunday. He is now Editor of Daily Business.
Leave a Reply