Grim signal to wealth creators from tax hike
Entrepreneurs predict that investors will be scared away from Britain by the Chancellor's failure to encourage them. Margareta Pagano reports
Sunday 26 April 2009
Where's the growth coming from to get us out of this mess? That's the real question everyone in the City wants answered, after one of the most anti-business Budgets in the history of Britain.
Here we ask a number of entrepreneurs and businessmen to say what they think about a Budget which every respected forecaster has accused of being wildly optimistic about the true state of the UK's finances.
One of the country's most successful entrepreneurs is Lord Bilimoria, the Indian tycoon who turned Cobra Beer into a multimillion-pound empire. He doesn't believe Alistair Darling's forecasts, and says there is no reason we should, especially as the Chancellor was so spectacularly wrong last year as well.
"This Budget revealed a deficit even bigger than any of us feared and puts Britain once more on the slippery slope to being the sick man of Europe. I'm not sure any of us believe Mr Darling's forecasts that we will see a return to growth by the end of the year. The situation could be far worse than the Treasury is predicting."
Every penny of tax on a pint imposed by the Budget squeezes Cobra, but it's the impact of the 50 per cent tax hike, and its long-term effect on the health of the country, that Lord Bilimoria fears most. "It's a bit like the non-doms situation. In some ways, it's not the tax itself but more the psychological message that the Government is giving to wealth creators.
"So much has been done to create an open, global economy, making the City one of the biggest financial centres of the world, and a magnet for talent around the world. But I'm afraid that Labour, through its stealth taxes and now the latest tax rate, is scaring people off again. It's the signal that it sends – that the UK wants to punish people who make money rather than encourage them."
As Lord Bilimoria points out, Treasury forecasts are out of line with everybody else's: Mr Darling reckons the economy will shrink by 3.5 per cent this year and predicts public borrowing of £175bn. But the International Monetary Fund predicts that the UK will contract by much more – by up to 4.1 per cent – while most forecasters argue that public debt could be as high as £230bn this year alone. Under the Treasury's forecast, the public debt/GDP ratio will rise from 36.5 per cent ( 2007-08) to 76 per cent in 2013-14, while Citigroup reckons it could be as high as 90 per cent.
Michael Spencer, another successful City entrepreneurs and chief executive of Icap, the world's biggest inter-dealer broker, says: "This was one of the most cynical Budgets ever. The 50p tax hike was a desperate, populist move ahead of the election to embarrass the Tories into defending the rich against the poor and to keep the public's attention off the enormous budget deficit. It was shameful in its cynicism."
But Mr Spencer, who is also treasurer of the Conservative Party, says the worst part of the Budget was the lack of incentives or encouragement for wealth creation. "The Government has raised public debt to record levels, but there was nothing in the Budget to encourage enterprise to create the wealth needed to help pay off this debt.
"I always thought Gordon Brown would go down in history as one of the worst ever prime ministers, but now I think he will be remembered as the worst ever."
At Longview Economics, Chris Watling is already predicting the next downturn. He thinks we are heading for another recession in about five years' time in order to pay for the cost of recovering from the one we are cur in now. "This Budget undermined any hope that the supply side can generate the wealth to get us out of the present predicament. There was no real help for entrepreneurs, apart from a few capital allowances, and the 50 per cent tax rate will put off wealth creators."
The view from the venture capital industry is equally grim. At Pi Capital, the chief executive, David Giampaolo, says he has received more than 40 calls and emails from private investors – part of his Pi network of business angels – asking him what they can do as a group to try to save this country from sliding further into the abyss. "This shows me the depth and breadth of the collective view that the leadership in the country has failed spectacularly. We are now long overdue for a change of government."
Simon Walker, the chief executive of the BVCA, the venture capital trade association, agrees that there was nothing in the Budget to encourage enterprise. He believes the decision to create a vague Strategic Investment Fund is a return to the public sector seeking to "pick winners" – but which will ultimately subsidise losers. Instead, it should have backed the highly targeted UK Innovation Fund for venture capital in which the private sector would have played a pivotal role. "This is, in short, not a Budget for recovery," says Mr Walker, "but a Budget that makes the burden for British business even heavier."
And, as any businessman knows, it's the three Fs who turn out to be the real backers of business – friends, family and fools.
Mr Darling did nothing to inspire any of them to part with their still over-taxed savings.
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