Was It Really A ‘Budget For Business’?
Gordon Brown’s charm offensive towards the City rolls on. The reaction to the Budget, which contained a surprise cut in headline corporation tax, was general rejoicing. It shows that if you shout loud enough for long enough the Chancellor will hear. But what Gordon Brown giveth, he taketh away.
The bill for knocking 2% off headline corporation tax will be met by slashing capital allowances on plant equipment and machinery. Meanwhile, there were howls of outrage from the small business community, which was hit by an unexpected 3% tax hike.
Small business apart, the Budget lived up to its promise, to the extent that it didn’t deliver a fresh kick up the goolies, but many will question Brown’s priorities. This was a rank-and-yank Budget that rewarded profitable multinationals at the expense of the unprofitable – typically those with high capital costs such as manufacturers.
Brown might have thrown a sop to Old Labour moralists by hitting casinos with a rise in gaming duty, but they’re unlikely to be impressed by his wooing of City slickers. Old-style socialists liken themselves to Robin Hood by seeking to tax the rich to help the poor, but when it comes to British business, the Chancellor has become a latter-day Sheriff of Nottingham.
The one silver lining may be that companies bring forward their spending to take advantage of capital allowances before they’re slashed, as happened after Nigel Lawson’s 1984 Budget when a 20% increase in business investment gave the economy a much-needed shot in the arm.
The only way to make sense of Brown’s decision to hammer small business is to view it as a reworking of Karl Marx’s famous dictum: “From each according to their ability (to run away), to each according to his need”.
The threat of international blue chips relocating to countries with more favourable tax rates was too real to ignore, but what of the cost? By harming small business, Brown is gambling with the most dynamic, innovative and flexible part of our economy. But big business should not rest easy. Corporate leaders should be worried about the sharp deterioration in public finances: Brown has quietly added an extra £16bn to borrowing forecasts.
As the picture gets worse and the political fight heats up, he’s likely to squeeze the corporate sector even harder for the revenues he desperately needs. Businesses, after all, don’t vote.