The Guardian web site has a headline this morning that says:
I find such commentary from David Cameron not just ludicrous, but part of an anti-business agenda.
Let's deal with profit first of all. This is a surplus paid as a the result of entrepreneurial skill. It is not a return to capital: that's interest. Profit, then, is the reward in excess of the normal rate of return to capital that results from the successful undertaking of a risky venture. The corollary is loss.
Now four things follow from that. The first is that the managers of big businesses do not have risk in their activities. They are paid a salary. Sure they can lose their job: so can all their staff and no one says the staff earn a profit as a result. They are paid a wage. So too are the managers of the business. The confusion of management reward with profit is a deliberate ruse to inflate the reward of those who can capture the reward of a business for their own gain because of the weak governance structures within UK (and other) big business. Cameron would be most unwise to equate the two: that way lies the support of the fact cats and not the equity shareholder.
Second, because much of the profit earned by business has been captured by staff those who provide equity capital to business, which is supposed to enjoy the benefit of an uncertain profit reward and so a higher rate of return than loan capital, which does not carry that risk, have seen little or nothing of that return of late. The yield on equities has been low because staff have captured the gains, most especially perhaps in banks. And yet George Osborne is fighting the EU for staff to keep that right to fleece their shareholders of that profit. That's a profoundly anti-business agenda.
Third, if Cameron supports business he would deliver what is needed to ensure that all business operates on a level playing field, which is an open and transparent system for knowing the ownership and control of companies and open and transparent accounting on a country-by-country reporting basis so that all business, whether large or small, could understand the realities of the market in which they operate, compete equally for capital and have that data they need to ensure the effective allocation of capital. But he doesn't. He is now on record as supporting tax havens. He is not planning to deliver transparency on the ownership of companies. He is not demanding country-by-country reporting on public record. He is reducing the information companies must file on public record so that the opacity of markets gets deeper, which is antithetical to effective competition. These are all profoundly anti-business policies.
And of course section 172 of the Companies Act must be complied with, which says:
A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to–
(a) the likely consequences of any decision in the long term,
(b) the interests of the company's employees,
(c) the need to foster the company's business relationships with suppliers, customers and others,
(d) the impact of the company's operations on the community and the environment,
(e) the desirability of the company maintaining a reputation for high standards of business conduct, and
(f) the need to act fairly as between members of the company.
In other words, it is not the object of business to maximise profit: it must operate with broad social purpose, which is exactly what I have heard Labour say.
So let's then turn to tax. Of course tax cuts are possible. But again there are issues. First, budgets must be met. This government is not doing that.
Second, need must be met. Very clearly this government is not doing that.
Third, the cut must be fair. Why it is fair to give tax cuts to big business and the highest paid taxpayers alone in the UK over the last few years is not clear: what is clear is that there has been no yield in terms of growth as a result. That means the decision was not economically justified and as such it must have been made on ethical grounds. Since the reward has gone to a) those who are capturing business profit for personal gain in anti-business fashion and b) non-entrepreneurial big business as opposed to high entrepreneurial small business neither can this be considered fair.
Last, tax gaps must be shut to be pro-business. Leaving it possible for some business to pay nothing - as is all too easy in the UK where corporation tax is now in effect an honesty box system of payment because the resources to check evasion have largely disappeared due to government cuts - is a recklessly anti-business policy because honest business is undermined by it but that is what the government have done.
David Cameron has a long way to go before he understands profit or what it is to be pro-business. And that makes his claims particularly galling.
The fact is that the tax justice agenda is the most pro-business lobby there probably is in the UK. It's those who abuse business that deny that.
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I felt his comments were really aimed at Entrepreneurs who set up companies to make profit. The UK needs more people to invest in staff and property to develop their companies. I believe this is the aim of his comments, not big business.
To be fair, more tax is paid by the highest people under this tory government than under Labour. So the argument they have had a tax break is wrong.
The papers make it clear he is talking about big business
And energy companies
The Tories have not been a small business party in living memory
Jason, Cameron’s comments are political rhetoric for the party faithful, they have, as Richard points out, little relevance in the real world. Actions speak louder than words, especially in the case of Cameron, who’s background is in PR and politics. Has he ever started or run a small business? Of course not.
As ever, actions speak louder than words. Cameron said he could be trusted on the NHS; in reality it’s being got rid of by a dishonest process of backdoor privatisation.
He said tax avoidance was wrong, but he’s done nothing to actually stop it, in fact he’s made it easier by changing the CFC rules so multinationals can pay very little tax on their foreign profits.
I suggest you educate yourself about the real world by buying a copy of ‘The Great Tax Robbery: How Britain Became a Tax Haven for Fat Cats and Big Business’ by Richard Brooks.
And of course, his government has continued the policy started by Gordon Brown of cutting the staff numbers in HMRC, as well as continually attacking the pay, pensions and T&C of it’s employees.
I run a medium sized company that I started from scratch. I am fully aware that his comments that business creates jobs is true.
However over the past 8 years we have been struggling to recruit the younger and next generation people. Not only have their basic skills been poor, including their presentation at interviews. But also they all seem to feel that they can and will be pop stars or some other reality tv person.
Its great policies are being developed to help younger people become more confident in the work place, to show them they can succeed.
The CFC rules have helped business out over the past couple years, with profits increasingly coming from abroad.
I am not sure what the book you are advertising has to do with business being fashionable again.
You were saying what about problems with presenting ideas?
Try reading what you post here sometime
Very well put, Richard. As a non-economist, I find what you say very convincing. You have set out a good argument for the Tories being, in reality, anti-business. Again: Why isn’t labour using these clear arguments? The fact that, over the last thirty years, CEO’s have gone from 30 times the average wage of their workforce to 300 times speaks for itself. Why the public cannot yet see that oligarchy is not free enterprise utterly baffles me. The notion that these vile liars (Tories) are the party of ‘hard-working’ people is a condescending and patronising insult.
The Tories are pro-big business and have managed to convince most of the electorate that the interests of small and big business are identical. On the contrary, the interests of a small business owner like a self-employed plumber, say, are vastly closer to those of the traditional working class than those of the City or the CBI. Nowhere is this more true than on tax.
Labour has never capitalised on this fact. It has all too often conceded the ground of ‘pro-business’ by effectively accepting that pro-business = pro-big business (and being in the pocket of the latter, anyway). There’s a huge gap there that only needs the right wedge to be driven into it.
Absolutely – there are so many openings that Labour are not seeing! It must be that they themselves are the victims of corporate capture! They should be hammering the Tories about the 30 year lack of lending to business by the banks, crippling house prices that suck wealth out of communities into the financial sector. They should have clearly delineated the fact that the Tories are the party of debt peonage; the only problem is this also indicts themselves!
Big business must be responsible – wink, wink (put’s tongue in cheek – suppresses a giggle). 🙂
….and profit gianed from a housing bubble requirs no effort…it is profit earned in your sleep! This is not true productive profit, it is profit from a over-inflated ponzi scheme!
“Why it is fair to give tax cuts to big business and the highest paid taxpayers alone in the UK over the last few years is not clear”
Do you not classify the increase in personal allowances from £6,475 in 2009-10 to its current £9,440 as a tax cut? It’s cut the amount of tax people pay. It’s far above an inflationary rise and has cut the amount of tax paid by those on basic rate by up to c£600 and this reduction has been restricted only to those on basic rate so it’s targeted specifically at them. It’s just wrong to say the highest paid alone have benefited from tax cuts.
Have you noticed what most have lost in this category too?
Tax is not just income tax
The 20% VAT rate will wipe out a lot of that gain, as will below inflation pay rises and the fact that people working part time now have to work at least 30 hours to claim tax credits!
Entrepreneurs are labour not capital, but they require other workers in order to create any wealth.
I sincerely hope that the advisers to all of the shadow cabinet members with a business and/or economics brief, plus Ed M’s, print this blog out and mark it as priority reading, Richard. You single-handedly demolish what is obviously planned to be the Tory counter attack against “living standards Labour” – and the boost this has given them in the polls. If Labour don’t use the material you provide here then something is seriously wrong.
Thanks
I suspect that won’t happen though
Indeed – Richard, you seem to have hit the nail on the head with your wording for this blog and could well be the thoughts that are expressed here are articulating what many might be only dimly aware of. I hope you circulate it far and wide!
I’m not anti proft. If an entrepreneur/business makes a profit then good for them.
I’m not against tax cuts per se (but tax cuts for whom?)
I’m not against big business. Clearly if big businesses grow they are going to employ more people, which is a good thing.
So to some extent I don’t disagree with Dave.
But with big business you have to ask where will new jobs be created. In the UK? Well possibly but by no means certain. With more big businesses relocating manufacturing facilities outside the UK, my expectation is that new jobs from big business expansion are more likely to be in places like China, India etc. not in the UK … And Ireland of course with that 12.5% tax rate incentive.
Successive governments have been bad at encouraging inward investment into the UK. And helping outwards investment doesn’t help the UK economy – except maybe very marginally/indirectly.
If you want to create jobs in the UK, it seems to me you have to look at helping local UK businesses – i.e. small businesses, making life easier for potential entrpreneurs and we don’t do that.
Tax cuts for big businesses, especially helping outward investment doesn’t help – except marginally becasue it may mean a handful of new jobs in corporate HQ. Tax cuts/incentives for small businesses and new business start ups are what’s needed.
http://info.moneyweek.com/urgent-bulletins/the-end-of-britain/?infinity=gaw~UKGOO-BRAND-SPART-Brand~UKGOO-BRAND+EXACT+End%20of%20Britain~21652885742~moneyweek%20end%20of%20britain~e&gclid=CLCjmp22-LkCFWfMtAodk2AAag
Richard – I’m thinking this is a scare-mongering tactic by Moneyweek to drum up subscriptions but I’d be interested to know what you think of their analysis.
Thanks
In a word – crap
Complete and utter crap
Jason, if you’ve started and are running a company, then good for you; my partner runs her own small company, and I know how tough that can be. However, the point Richard was making and I was following up, was that this government is not pursuing policies that are pro-business, (and certainly not pro society as a whole) they are simply kowtowing to the lobbying of big business and the bankers as regards taxation and regulation.
Given the cost of bailing out a failed financial system, and the unfair advantage big business can get from tax avoidance over SME’s (like yourself), I fail to see why you think this government is pro-business. The book I mentioned is about the way britian has become a tax haven for those able to manipulate the system for their own benefit, not whether business is fashionable or not.
“However over the past 8 years we have been struggling to recruit the younger and next generation people. Not only have their basic skills been poor, including their presentation at interviews. But also they all seem to feel that they can and will be pop stars or some other reality tv person.”
Really? If you’re attracting such poor candidates, maybe your rexcruitment practices need updating. What kind of starting pay are you offering?
“Its great policies are being developed to help younger people become more confident in the work place, to show them they can succeed”
What policies are those?
I agree with you SOTD
I ran quite a number of small businesses – and indeed, still do
I can recruit and always did
Sure I had to train – and still do – especially in things like letter writing which is a decided skill few have
But I did not find the problem noted
But then I always tried to pay decent wages
And it paid
‘Sure I had to train — and still do — especially in things like letter writing which is a decided skill few have.’
Given what I see on this blog, Richard (volume of blogs per day, words, etc) and what I know of your writing more generally, anyone taught letter writing by you is a lucky person indeed. I suspect you’ve been writing letters since you first learnt to read and write. 🙂
I began writing at 8 when my twin and I got our first typewriter
I still have it
It was portable – with one of us each side
Remington made them heavy when that one was built
One thing I find objectionable is the way politicians, particularly Tories, maintain that they are standing up for taxpayers – and are saying by implication that those who pay tax should be treated preferentially as opposed to the treatment of the unemployed who allegedly sponge off the taxpayer.
However every time a person on benefits buys- fish and chips, crisps, cigarettes, drink, petrol, clothes, gas, electricity,haircuts,furniture, etc etc – a whole range of goods and services, they become taxpayers due the fact that VAT is included in the cost of these supplies and for them avoidance of paying that VAT is out of the question, unlike large companies who can apparently become almost voluntary corporation tax payers! That the VAT due to the Treasury which ought to be passed on by the businesses that collect it from the public (the taxpayers) can be avoided or evaded is another issue – which is related to some extent to the way HMRC has cut VAT inspection staff substantially over the last few years.
I wholeheartedly agree
… the company I work for is about to get its first UK VAT audit in the best part of 10 years – I was quite shocked. We have overseas VAT registrations and they’re sudited regularly…Pretty much ties in with your statement on cutting down VAT inspection staff in HMRC.
Oh and we have a PAYE audit coming up to … the first in 7 years or so.
Turnover?
Richard
Turnover … hundreds of millions!
Sorry should mention virtually all of that turnover is outside the UK VAT net so we have turnoevr for VAT purposes in other EU states, but not in the UK.
Eiether way it’s a big business and we incur a lot of costs in the UK on which, of course, we pay VAT to suppliers and reclaim as input tax.
Quite correct. As a fellow toiler at the coalface of tax collection (or non collection as our staff numbers are endlessly cut), I see plenty of avoidance schemes, and some evasion schemes (MTIC springs to mind) which the better off try to get away with which those at the bottom of the pile have far less scope to avoid.
But that of course, is simply another instance of the humbug of the political right. The specious moralising about those at the bottom of the economic pile whilst they do very little about those very companies and people that indulge in tax avoidance the most is nauseating.
“A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members”
As the members of a company are its shareholders, that sounds like a director’s priority is exactly to maximise profit, albeit “have regard (amongst other matters) to” a bunch of things.
That’s absolutely not what it says
Which part have I misquoted or misunderstood?
Start here
http://www.taxjustice.net/cms/upload/pdf/Farrer_and_Co_Opinion_on_Fiduciary_Duties_and_Tax_Avoidance.pdf
and here
http://www.taxresearch.org.uk/Blog/2011/10/24/companies-do-not-have-a-duty-to-maximise-their-profits-or-to-avoid-tax/
So the argument is that so long as each member benefits (could be to the tune of a 1p dividend) then the director’s duties have been fulfilled? Admittedly the insertion of a “greatest” would clear the matter up, but the implication is surely that the benefit of the company’s members is their job, with regard to a-f.
I suppose my view is skewed by my being an owner (along with two others) and director of a business. Decisions I make to the member’s benefits are to my own benefit, so there seems little conflict when such decisions have to be made.
You clearly are not viewing the matter objectively – and are admitting so
I would say that I am, though. I know legalese has to be supremely clear, but the common sense interpretation is surely that a director should maximise that benefit to members. No place for common sense in law, I suppose.
Not in a million years can you draw that conclusion
It is just not there
To give the other side of the coin, I believe Slaughter and May have penned an article which criticises the Farrer opinion, and it is certainly the case that certain company law academics would disagree too. The position isn’t clear.
Isn’t clear does not mean it’s wrong
And candidly – I would not put much weight on Slaughter and May
Neither is the conclusion that the other factors a-f must me maxismised at the expense of members’ benefit. Isn’t clear doesn’t mean it’s right, either.
Nothing is maximised!
It’s all about the real world – no one maximises anything
Don’t you realise that? a) it’s impossib;e b) it’s irratio0nal c) only idiots suggest we do – and they’re called economists
So the argument is that so long as each member benefits (could be to the tune of a 1p dividend) then the director’s duties have been fulfilled? Admittedly the insertion of a “greatest” would clear the matter up, but the implication is surely that the benefit of the company’s members is their job, with regard to a-f.
I suppose my view is skewed by my being an owner (along with two others) and director of a business. Decisions I make to the member’s benefits are to my own benefit, so there seems little conflict when such decisions have to be made.