It's a day when people are going to try to claim a vision for small business.
According to the Guardian Osborne has a vision for small business. He's going to:
1) Give small companies an extended holiday on business rates extended at an estimated cost to the Treasury of £210m.
2) Unveil a seed enterprise investment scheme for business start-ups. 'Business angels' — individuals who support start-ups — will be offered the carrot of 50% income tax relief on investments of up to £100,000 in new enterprises, with each company eligible for £150,000 of investment in total.
3) Help for slightly larger businesses operating in those regions of the UK particularly hard hit by government spending cuts will also be earmarked for assistance through a business angel co-investment fund. Small and medium-sized companies with turnovers of between £200,000 and £2m a year and seen as having high growth potential will be eligible for help using £50m from the regional growth fund.
4) Assist the cash flow of construction companies working on government projects by the setting up of bank account arrangements to pay companies within five days or less of the due date. At present some companies have to wait up to 100 days for payment.
It's a dismal package, bar the business rates relief, which is a useful short term relief.
Why? Because in the last case business should be paid on time anyway: doing what you should be doing and claiming it a new benefit is miserable policy making. And as for the middle two policies: sorry to say but the number of business who will benefit will be tiny, the sums involved are minuscule, and my experience of such schemes (and they have come and gone like yo-yos over my thirty plus years as an accountant) is that they're nightmarishly expensive for small business to use, provide incredibly costly capital, tend to have far too many strings attached and are anyway simply really another mechanism for the highest paid not to pay their tax.
The schemes fail utterly to do the three things small business needs. The first is to increase demand for what they make. The second is to provide them with reliable sources of low cost capital (that was once called banking) and third provide the proper structure in which they can really operate without the constraints that the 19th century designed limited company imposes on far too many of them in terms of red tape and tax obligations.
So what does Blairite think tank Labour Business suggest instead? It published a paper yesterday. I can only comment in the space available on its small business proposal here, any other comment on a generally disappointing document will have to wait. The fact that the small business section was written by a member of City Livery Company The Worshipful Company of Tax Advisers is not encouraging. Nick Shaxson investigated them and their dedication to promotion of free market economics here. It's a relationship that sits uncomfortably with my view of Labour, but let's look at what's said in chapter on small business and tax reform. They suggested this:
- Free accounting for small business paid for by the state (a practicing accountant wrote this and said firms such as hers should supply this service)
- Tax simplification to the point where one person in HMRC could answer all the questions any small business person had on tax
and:
- better tax incentives for investments which remain constant, instead of changing each year;
- policies that allow for businesses under one year old to be exempted from HMRC late fines;
- reducing the present penalties on small businesses, which at up to £3,000 for incorrect records is onerous and prohibitive;
- a new system of tax credits for small businesses with fewer than six employees on a PAYE system;
- an extension of the flat rate VAT to firms with turnover of up to £250,000.
Or to out it another way:
1) scrap most taxes;
2) make compliance with what remains voluntary;
3) even then create special rules applying solely to the employees of small business;
4) give big handouts to accountants on the way.
Truly, you couldn't make up somehting as naive as that if it had not been published. It so lacks credibility it fundamentally undermines any claim to authentic understanding of the needs of small business Labour, if it was so unwise to adopt such thinking (that comes straight from the Taxpayer's Alliance of handy tips for undermining government by destroying its tax revenue) might ever have had.
So let me offer a real alternative, from someone who has been an entrepreneur. That's me.
First, small business needs there to be an economic stimulus put in place, now. Without demand there is no business. Demand is falling. It follows businesses will fail right now. You can't have a pro-small business policy without stimulating demand. It follows like night does day.
Second, let's get real: most small businesses employ just one person - and that's the owner. there's nothing wrong with that. But candidly it only suits some people, those not inclined to it should not try it, and those who are naturally tend to do it anyway. We don't need to encourage entrepreneurship. A minority in society have that skill. Let's not pretend it suits all: it does not and it's a gross mis-service to people who need employment and are suited to employment to suggest they are somehow second rate as a result.
Third, self employment is about creating a job for the owner and then for others. Let's not pretend it has some magical status. But jobs need to be taxed, fairly and properly so let's not ask for tax favours for small business. Indeed, far from that - I note Osborne's not choosing to tackle those who are abusing tax law and Labour Business want to make it easier to do so. I find that simply astonishing. Honest business is undermined and even destroyed by tax cheats. A government not committed to tax collection from small bsuiness fails honest small business, badly.
Fourth, let's move on from tinkering as these policies do. Minor supply side tweaks will solve nothing. Let's instead recognise that the limited company is a massive impediment to small business progress in this country. We have long ago agreed limited liability is a perverse thing that pays as it encourages risk. But in that case let's not make it so hard to use. We need to sweep away the limited company for small business and reserve it for medium sized entities and replace it with a modified limited liability partnership. That instantly says the owner is the controller of the business, they're not liable for loss unless they're fraudulent, and they pay tax on what they earn. There's no separate tax return for company and director, no PAYE, no dividend planning tricks to get round NIC, no benefit in kind rules on using a car you're paying for, no paranoia about when you can take money out: that's the real reform needed to cut the red tape out of small business and let it enjoy limited liability.
But the quid pro quo is full accounts on public record would have to be enforced.
And capital could come in then as a flexible profit and equity sharing arrangement with lenders - as is really needed, with much less complexity than now. Oddly, that's sharia compliant - and that's a mark of the credibility of the relationship in this case because both parties are then mutual risk takers.
And let's not pretend that banks and business angels are going to supply this new capital - a new state invetsment bank needs to do that - funded using 25% of all pension contributions paid in this country as a condition of the tax releif given on them. This would transform small buisiness capuital. We wouldn't be making a few million avaiulable as Osborne wants: we'd make all the capital needed available.
What next? A reduction in employer's NIC for now to make it easier to take people on.
And using LLPs it would also of course be easier - much easier - to promote people into ownership which can be massively difficult now - and which those in Tory and Labour Business ranks seem to ignore entirely as an issue, but which I think incredibly important.
After that? Three things: Make it an offence to not pay on time. Second, promote standard terms of trading and employment by default: what's the problem? Nudge people into them unless they opt out and that way admin is dealt with by default. And lastly as a matter of course make sure tax offices are open in all population centres of more than 30,000 people so people can go for HMRC advice whenever they need it - but not necessarily all from one person, because that's just daft.
Is all that possible? Yes it is. It will deliver a modern framework for small business and its regualtion. It would really cut red tape. It would make dealing with tax vastly easier. It would open real avenues for promotion into ownership. It would make capital available in genuine partnership deals. It would create demand. It would make employment cheaper.
That's a deal for business.
The right wing aren't offering that.
Why not?
NB There's more on this in the Courageous State
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Richard,
Assist the cash flow of construction companies working on government projects by the setting up of bank account arrangements to pay companies within five days or less of the due date. At present some companies have to wait up to 100 days for payment.
Some years ago my wife worked for a small business in Gloucester supplying industrial spare parts – chains, belts, that sort of thing. They consistently had problems with the large civil service department seven miles up the road in Cheltenham, but the reason they had the problem was that it was a PFI project – and ensuring the invoice went to the right company in the right place was a lot of work.
Another reason to get rid of PFI!
But if this is what simplifying payment means, it shouldn’t be limited to construction companies.
The triumvirate at the top of this Government is a joke. Watching Cameron, Osborne and Clegg wearing their hard hats and wellington boots visiting building sites reminds me that not one of them has held a ‘proper job’ or managed anything in their lives. To believe that ‘shovel ready’ infrastructure projects are going to turn round the economy anytime soon is wishful thinking. These projects take time to deliver, they are complex to manage and the outcomes are often not what was intended (late commissioning, overspends etc). Last night’s TV programme highlighted the pitfalls of PFI, which of course was started under the Tories and then continued by Labour. PFI has left the nation with considerable liabilities and hardly represents value for money.
What do you think of Osbourne’s apparent plan to use pension funds for around £20 billion of growth. You don’t seem to have commented on it. I strongly believe though that, as with their plan to kick start housebuilding, the devil will be in the detail.
That particular plan was mostly a con to sell off yet more council properties and expand the subsidies and loans to private renters.
If they do it right, the plan to use pension funds to kick start growth is a great idea. I have a feeling it will just be another tory con though.
Well, he has partly nicked the idea from me!
Google ‘People’s Pensions’
But he’s of course got it wrong too
See same document and ‘Making Pensions work’
did not the US government try to give poor people houses and it led to a massive bubble and collapse, why should government decide where capital should be invested? Spain has huge ghost towns so does China, US has huge amount of bank held foreclosed homes, This is a bad idea
as you say the LLP already exists – but you describe it as “modified” – what exactly do you want to modify about it? it already has to submit accounts.
you dont get entrepreneurs relief on an LLP – which I presume would act as a disincentive to use one – not sure whether this might be one of your modifications as well (although I assume you hate the relief anyway)
banks dont tend to like lending to LLP’s either (somewhat perversly but then when have banks ever been logical) so you would need to deal with that issue as well somehow.
interesting idea though.
LLP needs minor changes on liability risks and tax
But fundamentally it works – except that accountants can’t charge as much
That’s why it has not happened to date
Members of an LLP do receive ER. It is taxed just like a p’ship. And partners in a p’ship receive ER.
I disagree on the business rates comment; I think it is by far the worst part of the proposal. A cut in business rates will ultimately only benefit landholders, not productive businesses.
This is the most bizarre attempt at suggesting what small businesses want I have ever seen!
You really think that small business owners want the following :-
Money to go to the general public rather than them? The public may spend it, they may not, I would rather have the money as a tax cut.
Removal of limited liability to some half arsed version subject to your definition of fraud.
Loss of dividends and allowances so we have to pay self employed tax which will be more.
Loss of ownership of the business every time we need capital, or as in your later comments 25% to the State in ownership.
The only help being we can employ people for less through employers NIC, no cuts in tax to us directly, plus we are pushed towards giving employees part ownership.
Oh and its now an offence when we don’t pay on time, thanks for that!
This is the worst list of help I have ever seen, no one in business would endorse this, it is more of a left wing wet dream than a proposal to help business……
Since you’re a proponent of tax evasion I really don’t think your opinion counts
Anyone on the side of crime loses their right to comment here
You will be henceforth
Where does he reveal himself to be a proponent of crime?
On the discussion of tax evasion going on elsewhere on this blog
I think proponent of tax evasion is a bit over the top, but no I don’t think of it as the worst thing in the World. An example would be the following:-
Apple Inc announce they want to open a major R&D centre in the UK bringing 20,000 well paid jobs but they also confirm that no profits from this work will be accounted for in the UK, all of it will be routed offshore.
Now I think that this tax evasion is a price worth paying for those jobs while you do not. We do not live in a perfect World, hard choices are a neccessity for politicians, compromise is needed not following some righteous moral code no matter what….
That is not evasion
That is avoidance
It’s not illegal;
Just unacceptable
So please get your facts right
Really good post, Richard. As a small business owner myself I agree with your list of policy prescriptions.
The “Labour’s Business” report launched earlier this week really was absolutely awful: a wall-to-wall line-up of authors from the LINO (Labour In Name Only) faction of the party, with a set of neoliberal ideas straight out of ConservativeHome or some such. I hope the 2 Eds had a good laugh at the document before consigning it to the shredder.
Looking forward I think the LINO tendency in Labour is the single biggest barrier to victory at the next general election.
Damian Carrington, Guardian’s head of environment, has posted his verdict on the autumn statement.
George Osborne’s false economy is the death of the ‘greenest government ever’ pledge. It has been choked by the exhaust fumes and chimneystack smog belched out in chancellor’s desperate and wrong-headed attempt to restart the economy’s engine. He has sacrificed the vast economic opportunities of the green economy to an ideology that is incapable of seeing environmental action as an opportunity. Instead, says Osborne it is a job-killer that leads to poverty. Time will show him to be wrong, but time is the key commodity we are short of.
Agreed
Bad day for our future and he revelled in it
I found a video of Richard Murphy on youtube, title “Artful dodgers debate” Richard starts speaking at 4.06
Please excuse me for sounding like a socialist, which I’m not. I’m just a pragmatist who is worried about social cohesion, and wants a tiny bit more equality.
but shouldn’t the AS have done something about the very rich, who can;
Evade/ avoid tax
Send their children to private schools.
Pass on all their wealth.
Pay themselves vast directors bonuses.
Live twice as long as anyone else
Yes
And it didn’t
He passed the entire burden onto those least able to pay
I’m not a Marxist, but this sure as heck feels like class war to me – declared by Osborne and friends
Honestly, talk about trying to pick holes!…Can you not see I was trying to keep the example as brief as possible?
OK, lets try this:-
Apple Inc announce they want to open a major R&D centre in the UK bringing 20,000 well paid jobs but they also confirm that “a form of tax planning will take place that Richard Murphy considers 100% tax evasion”.
So now again would you support this or is this unacceptable to you?
But I do not consider that tax evasion
It is tax avoidance
That’s not picking holes – that’s just saying you really do not know the difference and as such are utterly missing the point of this debate
I’m sorry – but please get your arguments right or I just have to dismiss them as wrong – because they are
OK, I’ll try and say what Richard (the guest) was trying to say, but failing completely.
You believe this is tax avoidance (whether it is or not is another matter). It does, however, create 20,000 jobs in the UK. Given that nothing can be done to prevent this tax avoidance (since tax avoidance is not illegal), would you rather we lost (or never gained) those 20,000 jobs and the concomitant PAYE/NIC/consumer spending all for the moral righteousness of not having tax avoidance?
But he was commenting on issues relating to tax evasion – so respectfully, that’s not what he was saying
So the point remains irrelevant
However, the answer to your question is we and other states have to change the rules on the taxation of global corporations to a unitary basis so that tax is collected where profits really arise
It can be done
Country-by-country reporting would help it
And as the global economy collapses it has to be done or we see the end of society as we know it