The budget and SMEs

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My budget commentary for SMEs is on AccountingWEB. As it operates behind a registration wall I repeat it here:

The chancellor had a choice today: People or bankers, and he seems to have put people first, argues Richard Murphy.

The UK needed three things from today’s budget:

  • The first was a policy for growth.
  • The second was commitment to only a limited range of cuts until growth is restored and unemployment is falling fast.
  • The third was a commitment to increased taxes on banks, bankers and the well off to ensure that those who have benefitted most from the government bail out of banks, savings and all matters related to the financial sector pay most for the recovery process now needed to cure its excesses, which is now under way.

There were three things the UK did not need today:

  • The first was a commitment to cuts in government spending, come what may. This would have been disastrous at this stage in the economic cycle, leading to massive increases in the public sector, and the private sector in turn, which is heavily dependent upon the public sector for the maintenance of demand.
  • Second, it did not need across the board tax cuts making the least well off worse off - that’s because they have the highest likelihood of spending most of their income and in the process they keep the economy buoyant.
  • Lastly, it did not need a massive boost for savers, who simply suck money out of the economy when there’s a need for more spending. The fallacy that saving creates investment is just that – a fallacy. It is credit and demand that drives investment, not savings in search of a home.

Alastair Darling delivered. Not in quite the way I would like of course, Budget day being a day of universal moaning, but he delivered nonetheless.

First he committed to growth. I have argued for a Green Investment Bank and I am a member of the Green New Deal group that has been pushing that agenda. It’s not got enough capital, and it’s not clear it will be a bank, more a fund. But the messaging is clear, and the cash is important. The yield for the economy will be much more than the sum to be invested.

The commitment to providing better funding for small business is also vital – and I especially welcome the appeal process on credit. Simple forcing banks to have to account for their decision making processes will both open these up and make the lending market more competitive. That’s good for the SME sector, but it’s also real operational pressure on banks to improve their performance. That’s on the ground reform that could deliver real change.
Third, he has not played with the tax system today in any serious way. How often can we say that after a budget?
That does mean some opportunities were not lost to tackle avoidance – in particular through capital gains tax where the increased allowance for entrepreneurs was welcome but keeping the rate at 18% when the income tax top rate is 50% is an open invitation for abuse.

Other measures on evasion and avoidance also disappointed. The emphasis on increasing penalties for those using offshore is, of course, good news. Those using secrecy jurisdictions increase the tax burden on all honest people. However, there was, unfortunately, no news on the end of the domicile rule despite the obvious problems it causes and no news on change to our outdated and uncertain residence rules which continue to allow abuse. Announcing consultations on both would have been good.

Even better, announcing consultation on creation of a general anti-avoidance provision could have put down a clear marker on the future direction of tax policy that would have been politically popular and which would have provided enormous stability for tax the tax system – by outlawing avoidance the moment you think of it. But it did not happen.

However, grab what is available. Business rates relief is good news. It’s overdue and the whole business rates system needs reform.

Stamp duty reforms are not as significant – and the backlash from people who have just moved will be strong (I was on air at Radio 2 at lunchtime and the email complaints flooded in). In addition, these changes will be capitalised in house prices in days.

Let’s cut away all the wrapping, the rhetoric, and the horseplay, of which there was too much. Alastair Darling presented a choice which contrasts markedly with the Tories. Labour puts employment first, and will spend now to keep people in jobs and businesses that supply them open here to generate the wealth that pays the taxes that will repay the debts. The Conservatives, alone of all political parties in the G20, argue for cuts now top keep financial markets happy when there is no evidence that markets are unhappy. So this was politics: People or bankers first. All else was wrapping around that choice.

You decide. Those listening to Radio 2 have no doubt where I stand.