This government came to power after years of instability, pitching competence and commitment to the long term and without doubt, business wants them to succeed. So for the reshuffle to be more than political theatre, it needs to regalvanise the growth mission. That means making it easier for business to invest, create jobs and drive higher living standards.
Leadership calls not only for promises, but vision and delivery. There are no easy choices, either on policy or personnel. And as we look ahead to the chancellor’s budget in November, she must recognise that that we must avoid short-term solutions that risk us getting stuck in a cycle between fiscal events.
The government must grasp the nettle and find the right solutions to the big challenges on tax and regulation. This decisive action can then be matched by business investment to get our economy back on the rise and deliver improved living standards for people in every region.
The prime minister said we cannot tax our way to growth and that is certainly true.
Businesses already pay more tax than ever before. The £308bn paid last year more than covers the budgets of the NHS, schools and defence combined. Businesses are also picking up a greater proportion of the tax bill: paying 30% of all tax in 2023-24, the highest proportion since 1998, rising to 32% from this year as they pay an extra £24bn in NICs.
Alongside this burden, business regulation is growing. The employment rights bill in its current form will add cost and complexity, is already leading some firms to put hiring plans on ice, and risks making it even harder to bring people back into work.
There is still a chance to achieve the bill’s aims without frustrating those shared goals, but government must seize it now. Sectors critical for job creation in local communities often have low margins and high fixed costs so feel cumulative tax rises and the burden of unwieldy regulation more sharply. And most of the taxes they pay – including VAT, business rates and NICs – are due whether they make a profit or not.
A further tax rise for enterprise would not only be unwise but would run contrary to the promises of autumn 2024, when businesses last stomached a tax hit. Further rises would leave us with a growth plan in name only.
Profit is not a dirty word – it’s the reward for taking risks, it funds investment, creates jobs, and powers pay rises. Businesses that cannot sustain themselves also cannot sustain the jobs that rely on them – let alone invest and grow.
The fact is that geopolitics and global markets have shifted. The world is different from when Labour drafted its manifesto, and when the facts change so should the solutions.
The chancellor cannot raid corporate coffers again so she must look elsewhere, embracing long-term strategic tax reforms rather than maintaining a slavish adherence to manifesto promises on tax or ideas based on the world as it was 18 months ago.
The chancellor must commit to tax reform, not just tax rises. It is the structure of the system, not just the rates, that holds back growth: business rates penalise investment; the VAT threshold discourages scaling; and stamp duty restricts labour mobility.
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The chancellor needs to answer the big questions – what’s stopping the government from simplifying business rates? How do we help small businesses burst through the VAT ceiling? Can we fix tax thresholds and childcare so it always pays to work harder? How do we ensure tax doesn’t stop people moving? Could road pricing fill the yawning gap government faces as fuel duties decline? Many plausible answers have been in the ‘good idea but too difficult’ box for too long. Now is the time to fix things we know have long been broken. (You can add not backing away from driving efficiency in public services to that list of hard but necessary reforms too.)
While it’s imperative to understand the challenges we face, that does not equate to talking down our economy. There are deep roots of greatness and potential in the UK: our universities are world-beating, our life sciences sector is a global leader, and our financial services are a powerhouse industry. We have everything we need to steal a march on our competitors, but only if we act fast and decisively now.
The time for tinkering is over. We need to see commitment to the vision, reform and delivery, delivery, delivery of the government’s chief economic aim, growth. That means along with changes of personnel, changing outdated tax policies that risk hobbling our national ambition.
The writer is the chief executive of the CBI business lobby group.
