Big is beautiful: Small companies should not take priority over large ones

There is no moral or economic advantage in having a new job created by a small or medium-sized business over one that grows out of a big company

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Every government pledges to cut red tape, and every government in living memory has failed to do it. So the Coalition is to be congratulated for bucking that trend, and without any great fanfare about a “bonfire of controls”. Better still, the Prime Minister told the Federation of Small Businesses yesterday that more rules are to be culled; 640 pages of cattle movement guidance, 286 pages of hedgerow regulations and 380 pages of waste management rules.

Sounds good, but that half-jocular reference to cattle should remind us that regulations must be ditched with the same care as we would wish to see when they are introduced. After all, it was a previous bout of deregulation that gave us the BSE disaster, which virtually destroyed the beef industry. And when the rules about what the world’s banks could and could not do were ripped up in the 1980s and ’90s, financial crisis and the worst recession in a century eventually followed. Deregulation is to be applauded, then, but only if it is conducted wisely.

Meanwhile, what of the Opposition’s plans for a Small Business Administration? The shadow Business Secretary, Chuka Umunna, stresses that Britain is “the only G8 country without a state-backed investment institution”. Should this be a priority, though?

Not necessarily. Fetishising small business, any more than any other kind, is not smart, and distorts market signals. Practically speaking, creating new quangos and tax breaks and subsidies in one particular part of the economy merely adds bureaucracy, and indeed new red tape, to our already over-complex tax code – the opposite of that the politicians say they want to achieve. There is no moral or economic advantage in having a new job created by a small or medium-sized business over one that grows out of a big company.

The plucky, hard-working entrepreneur has a strong emotional appeal, of course, and one that Conservatives are especially susceptible to. Yet government, and opposition politicians, might be better off aiming to lower the tax burden for all enterprises – as well as making some well-known multinationals start paying tax in the first place.

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