Entrepreneurs and managers

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The Government claim – of course – that their budget was ‘business-friendly’, and therefore likely to boost economic growth.  The aim is not unreasonable; but is their claim really true?

Certainly, there’s a good argument for reducing the level of corporation tax.  Leaving profits in companies to allow for reinvestment and taxing the money more heavily when it is taken out in salaries, dividends and share options should theoretically enable businesses to invest more, and is, in principle, something that I support.

The proposition is not without caveats however.  If the investment simply flows abroad to lower wage economies, then the businesses will still benefit, but the benefit to the rest of the UK economy is rather less clear.  And I’m not at all sure that a relatively small cut of 1p hasn’t been massively over-hyped in terms of its potential effect.

It will certainly benefit the larger businesses paying £millions in CT, but it won’t make that large a difference to the smaller and medium sized companies which are the real engine of growth in employment opportunities.  And many of those larger companies are currently sitting on large cash piles anyway – it’s not lack of cash which is holding back investment so much as lack of worthwhile investment opportunities.

Then there’s the second part of their ‘business-friendly’ agenda – the reduction of the top rate of tax from 50p to 45p.  The argument is that this reduction in tax for those earning over £150,000 will help and encourage entrepreneurs.  I’m unconvinced.

Whilst there certainly are some entrepreneurs on very high salaries, £150,000 is a salary of which most entrepreneurs can only dream; the level of tax which they’d pay on it is tomorrow’s problem, not today’s.  In fact, the majority of people in the UK economy earning that level of salary aren’t entrepreneurs at all, they’re rent-seeking managers.  Increasing their take-home pay doesn’t have any obvious connection with boosting growth.

That perhaps underlines my issue with the way that the UK Government is using the term ‘business-friendly’.  Creating a climate where businesses can grow and thrive, providing jobs as well as goods and services, isn’t at all the same thing as increasing the net rewards of the people running those businesses.  It’s more than a little disingenuous to conflate the two in the way that the government are doing.