The hospitality sector is up in arms about changes to
business rates which, they say, will make their businesses unsustainable, and
are asking for changes which will reduce the amount of tax that they need to
pay. They are saying, in effect, that they are unable to charge a price for
their products which is sufficient to cover all their costs plus returning a
reasonable profit. Looked at in hard market capitalism terms, as discussed here,
that means that many of those businesses are simply not viable. Left to its own
devices (which is what many capitalists claim to want), a capitalist market
would force a reduction in capacity (some businesses would fail) such as to
achieve a new balance between supply and demand at a (higher) price which makes
the remaining businesses viable.
Now I’m not a huge fan of unfettered capitalism, and
whilst markets are, in general, an efficient way of allocating resources, the
idea that they are or should be completely unregulated is not a sensible way of
determining social priorities. Governments have always interfered, in various
ways, to moderate the impact of markets in pursuit of wider goals. And the
government may well be right in thinking – for reasons of employment retention,
or for reasons of social cohesion, that maintaining a higher level of provision
of restaurants, pubs and hotels than the market can profitably sustain is a
good thing, and thus decide to offer some sort of assistance. Those in the
sector want to see that assistance in the form of reduced taxation, but it
isn’t the only way of achieving the aim. Tax breaks are a form of subsidy. They
don’t always look like that, because it involves taking less from the business
rather than giving them a handout, but a tax regime which adjusts rates for
some categories of businesses in order to keep otherwise unviable businesses in
existence cannot be other than a selective subsidy.
It isn’t the only way of providing a subsidy. The
government could, instead, decide to take the same amount of money and issue
vouchers to each household, enabling them to enjoy a discount off the bill for
food and drink – subsidising the pints not the pub. It looks very different, of
course, but the effect is the same: people would be able to go out and enjoy a
meal or a drink which they couldn’t otherwise afford, and the businesses would
be receiving an income sufficient to make them viable. Better yet – for those
who are greater fans of markets than I – it would enable the consumers to
choose which pubs and restaurants received the extra custom and therefore money,
rather than being a blanket subsidy for all.
For a number of reasons, I wouldn’t actually propose
that, but it’s interesting to note that many of those demanding tax breaks
would be furious at the idea of ‘giving’ people money to eat out. It’s a
universal benefit which they are getting without working for it, they would
argue. Yet, in economic terms, it’s exactly the same thing: the same amount of
money produces the same effect in terms of people being able to afford food and
drink and businesses remaining viable. It raises an interesting and more
general economic question: when the government gives a subsidy, who is it
actually subsidising? Is it the business, the owners of the capital involved,
the consumers, the suppliers, or the employees? In practice, all of those
people benefit in some way or another, regardless of the form in which the
subsidy is paid or to whom it is paid. So why is a ‘tax break’ deemed an
entirely valid approach, whilst a handout to customers is some sort of
undeserved freebie? The answer, of course, lies in who sets the agenda and
boundaries of debate. And it isn’t the customers.
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