Why Cameron shouldn’t be hiring and firing, but encouraging and developing

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David Cameron’s agenda for reform is misguided. It’s not just that his cuts won’t work — because they’ll create mass unemployment — but his current plan to fill the void a retreating public sector will create by promoting private sector activity won’t work either.

Cameron’s recent article in the Sunday Times refers to the UK as if it were a company. There are two problems with the analogy. The first is the UK isn’t a company, it’s a country. The second is that countries aren’t like companies.

A company can hire — and fire. Once it has fired someone they’re off its books. The trouble for a country is it doesn’t work like that. For Cameron, every single person he fires will still be there, in the UK, looking back at him and demanding to be fed. In other words they’ll still be on his books, even when he’s fired them. They just won’t be doing anything for their keep any more. That’s why cuts won’t work.

And it’s why Cameron is also wrong to think it’s his job to march round the world trying to hire new business for the UK by offering them low tax rates in the UK. This doesn’t work because whilst a company can hire new talent a country — especially one like the UK which wants to limit immigration — has to create the growth it wants out of the talent it’s already got. That means if Cameron wants to find jobs for those he’s sacking it’s home grown business — and home grown small business at that — which he has to promote, because it’s this sector which really creates jobs at low cost. Multinationals create very few jobs at very high cost — look at the average car plant if you want evidence of that.

This means the last thing he should be doing is cutting the headline rate of UK corporation tax. That will bring in tiny numbers of jobs at massive cost. Worse, it looks unfair. And worst of all it makes life for already struggling small businesses tougher still. On average when the UK corporate tax rate was 30% large companies paid at about 22%. Now it’s going to be 24%, which means even after reduced tax allowances are provided for large companies are only going to pay tax at 15% or 16%. That’s a rate much lower than that which most small businesses will really be paying — which is likely to be over 20%.

Blow all Cameron’s efforts at cutting regulation, creating an unlevel playing field in which small business that create the jobs we need pay more tax than large business makes no sense at all. It’s a straightforward slap in the face for their efforts — and tells them not to bother.

And yet it’s the small business sector that Cameron needs to encourage. This is where our future, our jobs and our business prosperity are to be found. But the small business sector does not need hiring (as Cameron seems to think), it needs nurturing. It does not need a big stick, it needs carrots. It does not need to be told it can be fired — it needs to know it has government support — backed up by things like development agencies that ensure it has the advice, help and premises it needs as it grows, in the area where its employees are. Deny it that and it can’t develop, grow and contribute.

So Cameron’s analogy that he’s a business hiring and firing is wrong. He isn’t. He’s a prime minister of a country which faces little or no prospect of export led growth because the whole world, like the UK, is in financial meltdown. In that case his only hope is to be like the captain of a ship in a storm. Each person overboard though unemployment is a loss creating at the same time the burden of recovering and reviving them before they can play a useful part in the crew once more. And the only chance of survival is from nurturing and encouraging the crew the Captain’s got available to use the resources, talents and opportunities available to them to best effect.

This requires an economic policy that is UK centric, because nothing else is possible. It requires an economic policy that focuses on promoting growth in the UK economy through promotion of small, home owned business. It requires local jobs for local people. And it requires the government to take an active and central role in promoting that change.

That’s a long way from the place where Cameron is right now.

And that’s why he’ll fail.


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