Budget 1999: Well-meaning, but gimmicks don't help entrepreneurs
Wednesday 10 March 1999
Not really, is probably the fairest judgement, although neither can the Chancellor be faulted for lack of enthusiasm. He went at it hammer and tongs, and what with all the stuff about electronic commerce, the Internet and building the high-tech companies of the future, at least he demonstrated in a breathless sort of way a willingness to try. Unfortunately, the substance fell a long way short of the rhetoric.
Let us start with the really negative bits. Gordon Brown was particularly disingenuous when presenting the intention to reduce national insurance contributions as a tax cut for business. Sure, he will be cutting the level of employer contribution, but to a level which is higher than the one he inherited from the last government.
And for next tax year, the higher rate will rule, with the new lower level not kicking in until the next century. National insurance is a payroll tax, so it hits service industry employers, whose main cost is labour, particularly hard. Such companies will have difficulty taking advantage of the extra capital allowances for small to medium-sized companies announced in yesterday's Budget. This from a Chancellor who wants to encourage people- based Internet companies. Shame on you, Mr Brown.
The measures to encourage employee share ownership seem to be reasonable enough - buy one, get one free - and allowing employees to make such purchases out of gross income was an added bonus. However, for most earners it will continue to make more sense to top up the pension scheme out of gross income than to take the risk of investing in the company they work for.
As for the enterprise management incentive scheme, this is just an ill- thought-out gimmick. Nobody is going to quit a highly paid job in a secure organisation and take a high-risk enterprise for this. The manager who does so will still be tax disadvantaged against the owner-proprietor, one of the many examples in this Budget of how Mr Brown's desire to please has served only to make matters more complex and confusing.
There are measures, for instance, to allow employees to take home their companies' cast-off personal computers without being taxed for them as if they were a benefit. What the Chancellor gives, he takes away again. Other benefits in kind will fall subject to national insurance for the first time.
As for the new 10 per cent corporation tax starting rate for companies earning profits of less than pounds 50,000, this, on close inspection of the documents, appears to be just an outright fib. In fact, the 10 per cent rate applies only to the first pounds 10,000 of profit. The other cuts in the rate of corporation tax, to 20 and 30 per cent depending on size, do not even go half way to compensating for the extra tax and benefit burden that business will bear as a result of the already announced changes to the system of advance corporation tax.
It is an old, but important truism; governments do most for business simply by staying out of its way. Unfortunately, very few politicians seem prepared to abide by this principle. Instead of dismantling the paraphernalia of law, regulation and state that stands in the way of the efficient operation of the free market, they seem only to want to add to it, certain in their conviction that by meddling they can somehow improve the lot of the small businessman and entrepreneur, as well as the wider prosperity of the economy.
There is no more passionate believer in the need to meddle than the present Chancellor of the Exchequer. Having in his first year at No 11 established some of the building blocks for a stable and prosperous economy - including an independently determined monetary policy and a rigid set of rules to keep the public finances on the straight and narrow - there came the question of what next.
Mr Brown proclaimed this task as that of tackling the productivity gap between the United Kingdom and its major competitors. He wants to dismantle the cartels and promote competition, to modernise our workforce through training and education, and above all to promote high-tech small business and entrepreneurialism as the road to salvation.
Few people would contest the mission statement. The implementation is another matter altogether and it is hard to see how the meddling announced in yesterday's Budget is going to add much to the party.
On the other hand, the Chancellor continues to get it about right with the big numbers. There is a mild fiscal stimulus - amounting to pounds 6bn over three years - with the whole of that benefit directed at the less well off. Perhaps surprisingly, Mr Brown does not appear to be hitting the better off to pay for this limited degree of wealth distribution.
The money is found courtesy of the present very healthy state of the public finances, as is the extra for government spending. To make the figures add up, however, the Chancellor is being forced to make some very optimistic assumptions about the outlook for the economy.
So far he has been lucky on this front. Although the economy has not performed as well as hoped, the public finances have, with tax receipts coming in higher than expected and spending lower. As all former chancellors know, that kind of luck does not go on for ever.
Even so, there is no reason to start worrying unduly about the macro economy quite yet. The biggest gift that Mr Brown has so far bestowed on British business has nothing to do with the gimmickry of yesterday's Budget. Rather, it is in the stability that sound public finances and low inflation are at last bringing to the British economy.
Unfortunately for Mr Brown, for this to pay dividends in terms of the enterprise culture he strives for is going to take time, patience and a Government that stays out of everyone's hair.
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