Few would disagree that UK business is both overtaxed and over-regulated. Those at the sharp end know this, despite all the efforts of official statisticians and bureaucrats to tell us otherwise.
The Treasury would have it that Britain is becoming more competitive and overtaking rival economies, whereas the CBI argues that higher taxes and obsessive regulation are undermining our ability to compete. This view is supported by a recent KPMG study which shows that the number of companies who decide where to locate by reference to tax regimes has increased by 86% over the past year; and that Ireland leads the world as the most favoured tax regime because of its low corporate tax rate.
our output per worker lags far behind productivity in the USA.
As for investment, even the Treasury admits that capital equipment available to French workers is 80% higher than in Britain; and that American and German workers enjoy a capital investment advantage of 50% relative to those in Britain. Consequently, our output per worker lags far behind productivity in the USA.
Words without substance
The 2007 budget document included a section on “Creating an Enterprise Culture” which begins: “Enterprise culture encourages positive attitudes towards entrepreneurship and risk. A more enterprising culture can only be achieved through widespread engagement by individuals and organisations across the UK”.
Ho, hum. Whoever wrote this slush would not recognise an enterprise culture if it swallowed him whole. The point always missed is that enterprise is a natural, almost instinctive, human attribute and you don’t actually have to do anything to cultivate it other than to stop hindering it.
During the last 5 years of Mr Brown’s Chancellorship 3,500 pages, or 1 million words, were added to our tax code, now one of the longest and most tortuous in the world. The fiscal and regulatory complexity generated during this period is now doing real damage. The nature of bureaucracy is to interfere with the operation of markets, yet bureaucrats have been given a free hand. Result: an economy that is nowhere near as efficient as it could be.
The Treasury’s failure to grasp the principles is reflected in the Exchequer’s declining returns from North Sea oil and gas. These peaked at close to £10 billion in 2005-6 because oil prices were high. The Chancellor, seeing this as a rich seam, simply doubled the rate of supplementary corporation tax on oil profits.
Then oil prices fell, costs rose and it all came apart. To quote the chief executive of UK Oil & Gas: “We believe there are lessons to be learnt from the much sharper-than-anticipated decline in government revenues witnessed after the rate increase of 18 months ago. Higher tax rates do not always generate more tax”.
Taxable capacity is the key
Taxes that disregard “taxable capacity” will never yield optimal returns if they render marginal businesses non-viable . When North Sea oil was discovered all those years ago the Select Committee on Energy wisely declared that the tax regime must be so structured that no oil field viable before tax is rendered non-viable by the effect of that tax.
Any government committed to enterprise must act from knowledge and drop the spin. This means resisting the temptation to tinker with words. Our dear old DTI has now been rebranded “The Department for Business, Enterprise and Regulatory Reform”. And there is a new animal called “The Department for Innovation, Universities and Skills”. This is not taken from an old Monty Python sketch and I am not making it up. The only enterprise that will benefit is signwriting.
The subliminal effect of word substitution on everyday consciousness has been growing ever since banks started having “clients” instead of “customers”; while the railways exchanged their “passengers” for “customers”; and “trains” became “services”.
Perhaps the hazards of the whole sub-prime lending fiasco (of which I gave ample warning in my June article) might have been more apparent if the wizards who invent fancy names for financial instruments (revealingly called derivatives) had been forced to re-label “collaterised debt obligations” as “IOUs”.
Shakespeare noted that a rose by any other name would smell as sweet. But the last line of Sonnet 94 may be more apt today: “Lilies that fester smell far worse than weeds”.