Conservative orthodoxy on picking business ‘winners’ must change

James Willby

I’ve often listened incredulously to otherwise sensible Conservatives opposing the idea that Government should pick winners. The topic seems to cause consternation in many right-leaning circles. “Invest public money in companies? Pick winners? What is this: Cuba?!” they cry. What would you prefer, I ask them. That we pick losers? Cue more consternation and a reiteration of the fact its taxpayers’ money being invested. How is that in any way different to what a pension fund or banks does, I enquire. Why are you happy with commercial entities investing your money for a return, but not elected representatives using it to produce growth and jobs?

Needless to say its not a particularly well received notion – akin to being pro-EU – but as a rather brave Conservative confided to me recently, the words “industrial strategy” should not be a taboo for someone on the right.

If our aim is to get Britain back on its feet, it is utterly nonsensical to write-off a potential avenue of endeavor. Forget being economic Meatloafs – protesting how we’d do anything for growth, but we won’t do that – lets be fiscal Roy Orbisons and give business the Big O it deserves: anything it wants, anything it needs, it gets it, and sometimes that means doing what up until now has been utter heresy for many in the Conservative rank and file. It’s time to become proactive about identifying the industries of the future and giving them a leg-up, or more succinctly, pick some winners.

And yet unbeknownst to the party at large, that is exactly what the leadership has been doing.

In 2009 at the annual CBI conference, George Osborne was heard to lament the fact that the then Labour government had not conducted a single trade mission to sell British goods overseas. Since taking office in 2010, this has been completely reversed. Take the Prime Minister’s trade mission to China last week. In addition to ministers, ambassadors, and civil servants on the trip, there were a host of men and women from across British business. Yes, there were the Jaguar Land Rovers and the Rolls Royce’s, but there were also SMEs from across the UK. From food manufacturers to retailers, they encompassed an incredibly diverse range of fields. They were there because they showcase the best of British – being innovative, creative and dynamic. And they were there because they recognized the opportunity they were being afforded.

Do you think these SMEs could ever have secured access to China, the world’s largest economy, without the help of Her Majesty’s Government? No local business conference or trade show could possibly give them the opportunity that trip afforded. If that isn’t “picking winners”, I don’t what is. Further afield, we’ve seen the State investing in graphene, “quantum technology” (don’t laugh), giving tax breaks to video games and creating an office of unconventional gas to help monetise shale. These are all examples of the State seeing the growth potential in a technology and wisely choosing to invest.

So we do pick winners, we should pick winners and it’s about time we had the guts to say so. As GK Chesterton observed, “I did try to found a little heresy of my own; and when I had put the last touches to it, I discovered that it was orthodoxy.” Amen to that.

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Deregulation of small businesses is proceeding quietly but promisingly

Matthew Robertson 6.01am

If you weren’t already up-to-speed with age related allowances, income tax thresholds and VAT on hot baked foodstuffs, the past couple of weeks have put paid to that.

The Chancellor’s recent Budget hit the headlines for many of the wrong reasons. One man, however, has been surprisingly off the radar. Can anyone remember the Business Secretary?

Proposals emanating from the Department for Business, Innovation and Skills (BIS) caught my eye more than anything else in the Budget - and no, that isn’t because BIS is better than the Treasury at stopping leakages.

The Government has repeatedly stated that small businesses are key to the economy recovery. For instance, David Cameron in November 2010:

"I feel very strongly about the need to do everything we can to help and promote small and medium-sized businesses. They provide nearly 60 per cent of our jobs and half of our GDP."

The thinking is this: deregulate on behalf of these companies and they will invest, grow and hire new employees.

There have been no headline grabbing proposals so far but there has been some quiet progress. In October 2011, BIS released a discussion paper entitled 'Simpler reporting for the smallest businesses'. It was not a statement of government policy but it did offer ideas and evidence that the Government seems to have taken on board.

The main idea was to reduce reporting requirements for micro entities. These micro entities do not actually exist in this country yet but they were defined by the EU competitive council in February 2012 as any company that matches two of the following three thresholds:

  1. Turnover less than €700,000
  2. Gross assets less than €350,000 
  3. Fewer than 10 employees

This would cover approximately 60 per cent of UK companies registered at Companies House.

The reporting requirements for these companies would be significantly reduced. A profit and loss statement would not need to be filed at Companies House and only an abridged balance sheet would need to be prepared.

In plain English, if these proposals are adopted, a significant amount of work and expense undertaken by small companies to prepare accounts would no longer be necessary.

Meanwhile, the Office of Tax Simplification (OTS) has conducted a review of small businesses, in which it was found:

"Despite devoting time, expense and care to calculating tax and filling in tax  returns, half of small businesses worry about making mistakes in applying the rules. They also found that 20 per cent of small businesses (potentially 700,000 businesses) have difficulty working out how much tax they need to pay, and that half of all small businesses had experienced difficulties identifying what is a deductible expense."

The OTS goes on to recommend:

"Small, unincorporated businesses should have the option to calculate their taxable income on simpler cash receipts and payments basis."

It is not certain what impact these proposals would have on small businesses if implemented, but the Government hopes they will provide businesses with more assurance on tax issues, which could lead to more business confidence and a boost to the economy.

These proposals have undoubted benefits. Whether banks would be more or less willing to lend, however, is unknown, but the thinking from BIS is that complex regulation currently impedes small businesses from accessing credit. This lack of access is in turn preventing investment and hiring.

There are many difficulties, such as the concern that these basic accounts would be inferior to those published for other, bigger entities. This could counteract any help small businesses get from reduced complexity in terms of accessing credit.

Above all, these proposals do not seem to consider how useful accounts can be. For instance, a receipts and payment account does not indicated a company’s profitability and would be subject to manipulation (e.g. a company with a cash surplus of £2 million could spend all of that on a new building or a machine just before the end of the tax year, thus giving it a net figure of zero). Users of these accounts would be handicapped by the lack of recorded trading activity, not to mention the effect it would have on the tax chargeable to these companies.

A better approach would be to simplify the tax system itself, in particular by merging PAYE and NIC operations. The contributory idea of NIC has long since disappeared. Furthermore, the result would be more upfront about true total tax rates, which would help to clarify the taxation debate and possibly put pressure on the Government to reduce taxes. The Budget states that the Government is consulting on this change so we will have to wait and see.

Whatever direction we are heading, these proposals could have a great impact on small businesses across the country. What cannot be denied is that the Government is trying to make Britain appear ‘open for business’ by assisting small businesses, the bedrock of the economy.

It might not be the most fashionable or tabloid-friendly sentiment but small businesses are going to determine how quickly Britain grows out of these difficult times - not the 50p top rate, not age related allowances, nor VAT on food.

Matthew Robertson is a trainee accountant. Follow Matthew on Twitter @FlatFootTory