Friday, 9 January 2009

Cut business rates

I can't say that I was enormously surprised by the news yesterday about the scale of unpaid overtime being worked in Wales.

I've referred previously to the fact that an increasing number of companies expect employees to work 'whatever it takes' to 'do the job' – an attitude expressed clearly by the CBI Chairman, when he said that "people who are being paid for doing a job should make sure that job gets done". It sounds like a reasonable expectation, until we remember that many of the same employers have relentlessly cut numbers of employees, and piled the extra work on those who are left. The 'job' that people are being paid to do has, in many cases, simply grown – and the hours expected of the people has consequently grown as well.

Leaving aside that more general trend, in a time of recession it is easy to understand how businesses, especially those which find themselves operating on the margins of viability, are looking to reduce their costs, of which staff costs are a major element. It is also easy to see how employees, faced with an apparent choice between working longer hours or losing their jobs, are opting to try and save their jobs. But however easy it is to see how it is happening, it still leaves me feeling very uneasy that it is the employees - often the lowest paid employees - who are left to bear the brunt of the effects of the recession.

The free marketeers would no doubt argue that this is the inevitable result of market forces; either employees accept a worsening of their terms and conditions or else they lose their jobs. It seems that the Tories are very much returning to this sort of position - which did so much damage in the 1980's - with their obsession about balancing the public finances rather than intervening. I find myself much closer to the interventionist position of the current government, but I remain far from convinced that they are intervening in the right ways.

I am completely unconvinced about the marginal reduction in VAT as a solution to anything – I don't think it will make any significant difference to the viability of businesses, despite its huge cost. I think it's time to look at business taxes again. Not particularly Corporation Tax at this stage – after all, only companies making a profit pay that tax. But business rates is another kettle of fish entirely.

Like the Council Tax, this is a tax based on property values, and bears no relation to ability to pay. Businesses have to pay it whether they make a profit or not, and for many businesses, the sums involved could well be enough to make the difference between viability and insolvency. Long term, it needs radical reform, but a short term suspension of business rates, on either a general or a selective basis would probably do much more to allow businesses to continue trading through the recession than the cut in VAT. And surely it's far better to help businesses cut their costs in this way than to see them transferring the problems to their staff.

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