Tuesday, 3 May 2011

Business tax

The suggested policy of supporting small businesses by lowering or removing small business tax is an ill thought out, naive policy that would not achieve its' desired outcome. Would we all like lower taxes, would we like no taxes at all - of course we would but we all know that the money to run the country needs to come from somewhere and everyone needs to do their bit.

So lets look at the reality of this policy. First off, how do you define a small business? Is the current definition correct or does it need revision? Most common definitions are businesses with less than 25 employees and a turnover of less than £250k. The Conservative policy defines them as businesses with £12k profit or less. I find this an incredible way of making a policy that sounds good but actually is not applicable for the majority of small business.

Take some examples of small businesses I have regular contact with, A painter and decorator with 2 guys working for him, makes a profit of between £30 - £35k per year. A window cleaner, working mainly businesses with a little domestic work a few days a month - profit £15-£17k and a gardener with one part time assistant, working mainly contracts with some domestic work when needed, profit £20 - £25k.
Genuine examples of genuine (I would say small) businesses that will receive no benefit from this policy at all.

I would then ask the 'Poloticians' is small not relative? Is a small business in Pembrokeshire or Anglesey, different to a small business in Cardiff or Swansea? Would a local approach to business size be more appropriate? Not for me to decide, maybe the decisions around small business should be taken at the local level with the revenue being returned to the local level as well.

Then lets look at the practical side of reducing tax. With competition between small businesses being very intense, any opportunity to gain a price advantage will be taken, human nature and the market mechanisms dictate this. So reducing the tax will reduce prices, income and therefore profit. Small businesses will have less to invest in development and actually be worse off rather than better off. If there is any increase in income, it will be saved for a 'rainy day' not invested in expansion or people.
Now lets look at the government side of the equation. Reduce the tax and you instantly have a black hole in your budget. How to fill it - you could close a few more schools or hospitals but you know that is going to bite your backside hard pretty soon anyway. What else is left to cut?
You could tax those on higher incomes or close the tax loops the your friends use but they fund your party so that will not go down very well.
Lets face it the idea of reducing corporate tax did not go down very well. Everybody in the country pays for taking less in tax while a few finance houses and advertising companies (or chums as they are normally called) move back to London. Another business tax balls up would not go down very well.
No big companies are relocating to Pembrokeshire, no companies are expanding in Pembrokeshire - several still have their expansion plans on hold for several years to come.

All of the pain none of the gain.

It becomes a gimic policy when the WAG may not even have the powers to implement such a change and when several 'supporters' of the party are only capable of discussing soundbites rather than the policy. 
A better solution would be to increase the tax relief on certain types of investment such as training and expansion moves. This encourages business to improve their product, search for innovation,  improves the skills base and encourages expansion. Surely this is what we should be aiming to help our small businesses to do.
I have not spoken to every single small business in Wales, but then neither has a certain 'reporter' from 'National' newspapers who paint their blue skin a nuetral white so their Tory chums get a few more misguided votes. I may not have the perfect solution with my ideas, but I do not talk Welsh businesses and the Welsh economy down and never will.

It is only through thinking differently that the Welsh economy will improve - thinking 80's will simply send us back there. Maybe that reporter is stuck there which might explain his love for everything Thatcherite.

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