Sajid Javid: We must slash corporate tax rates and burn regulations to improve conditions for small and medium sized businesses
Until Lord Mandelson announced this week that the Government is delaying implementation of the EU temporary workers' directive, my business was planning to virtually stop hiring temps. Going ahead with this bad European legislation would have led to higher unemployment and additional costs for British business of £3.5 billion per year.
This brings me to my point. If we are to get out of this economic mess, we are going to have to radically improve the conditions for small and medium sized businesses - the major drivers of economic growth, product innovation and, most importantly, job creation.
Many of the sources of the much talked about economic recovery are temporary and precarious. The rebuilding of inventories will not boost firms' output for long. Spending is being driven by government largesse, not confidence. Massive fiscal and monetary stimulus is providing a short term boost, but the underlying problems remain.
George Osborne was right last week to spell out so clearly that we will only begin to mend our broken economy by making a significant dent in government spending. This will restore our financial credibility on the world markets and prevent interest rates from sharply rising. But low interest rates alone are not going to get us out of this mess.
The two most powerful measures an incoming Conservative government can take are to slash corporate tax rates and burn regulations. The evidence in favour of lower rates of tax on profits is overwhelming. Far from sacrificing revenue, a substantial corporation tax rate cut can, as a result of business and economic growth, lead to an overall increase in tax revenue in just a year or so. It will not only encourage enterprise and create jobs, it will actually increase the absolute amount of tax collected and contribute to getting the fiscal deficit down.
With the 50% marginal income tax rate set to stay for a while and a higher VAT rate looking unavoidable, we should at least make our country competitive for commerce by slashing the tax on profits. It will not only have an immediate positive impact, but send a worldwide signal that the UK is open for business. Osborne has already publicly pledged to bring the corporation tax rate down from 28% to 25%, but we should go much further. A 12.5% rate is what will set us apart and give the economy the boost it so desperately needs.
Let's not forget Business Rates either. For many small businesses, Business Rates are the third highest expenditure (after wages and rent). And, unlike other taxes, the amount charged is not linked to profits.
Up and down the country, many small businesses are struggling to pay Business Rates. As many go bankrupt, thousands of jobs are being lost. Although the Government has belatedly introduced a relief scheme, it's bureaucratic and frustratingly slow. We should provide automatic relief from Business Rates for all small businesses of a certain size.
We also need a dramatically different approach to business regulation. Many small business managers will tell you that it's the sheer cumulative volume of regulation that makes their lives so difficult. People who need to be dealing with customers and products are instead too busy complying with regulators. Many regulations are simply not necessary to keep businesses honest and safe.
Over half of our business regulations originate in Brussels, with most never discussed in our Parliament. In many cases, EU regulation sits alongside existing UK regulation - creating the problem of double legislation for businesses. For instance, when Labour opted us into the Social Chapter, it kept existing social and domestic regulations in place.
We should appoint a Business Deregulation Minister whose sole job would be to cut or significantly amend current nonsense regulations, and prevent future nonsense regulations.
We can make a start with repealing working time regulations (preventing businesses from managing their workload sensibly) and data protection regulations (which have failed miserably). We should also restore our Social Chapter opt out (and produce UK rules that actually work, perhaps similar to those in Australia) and repeal the silly IR35 tax on providers of personal services.
Creating the right conditions for businesses to prosper is going to be critical to our eventual economic recovery. It's up to the Conservatives to lead the way.