Carl Richardson, Joint Managing Partner – Richardson Capital LLP
The new government is moving with understandable haste to map out its legislative priorities for the coming months. Much of this has been laid out in July’s King’s Speech.
One welcome element which the new chancellor alluded to during the election campaign is a global investment summit within the first 100 days as a way to put meat on the bone for her growth mantra. But what might business actually want to see in the UK and what could it mean in practice? Adam Smith said it best: ‘peace, easy taxes and the tolerable administration of justice’.
Firstly, the calm transfer of power between administrations is vital to retain and attract capital in the UK. Scrutiny of those in power – and of those that seek it – is of almost equal importance: government’s feet must be held to the fire to provide a strong alternative administration.
The size of Labour’s majority means that there will be some folk who are anti-business and in favour of re-nationalisations, higher corporation tax and protectionism, but there are plenty of informed voices saying the opposite.
Business wants to see wealth creation championed more consistently and a rush to knee-jerk anti-growth policies avoided. Bold action on planning reform announced just days after entering office – such as calling in two planning appeals for new data centres – is a positive sign.
Secondly on taxes, there are a couple of key priorities. Consistency with headline corporation tax is important, though it would obviously be welcome if it was reduced. Yet this sometimes misses the wood for the trees. The UK had until recently an uncompetitive effective corporate tax rate, with few allowances and rebates.
To that end, it’s good that recent changes – such as full expensing on qualifying plant, equipment and machinery were made permanent in the 2023 Autumn Statement (and retained in Labour’s manifesto). This scheme could even be expanded, such as by bringing buildings and land into its remit.
Government should also try and avoid sleights of hand in the tax system (not least since Tolley’s direct and indirect tax handbooks now extend to over 23,000 pages). Any allusions not to be increasing income taxes on working people might mean that firms instead are forced to pick up the tab with higher employer national insurance.
This will eventually hurt both wages and economic growth. Yet political debate can sometimes prove a frustrating zero-sum game. So government should strive to be as straight as possible with business and the public when it comes to their taxes. The outcome should be clear: we should be incentivising risk takers to rise early and work late.
Both main political parties continued their commitments to high levels of public spending during the campaign. Because of this, a falling tax burden looks unrealistic in the short to medium term. A panoply of tweaks which have occurred – such as reducing the dividend allowance – and also those that have been threatened – like changes to carried interest – must be limited where possible, especially with the current ambiguity about the size of the state and tax burden in the years ahead.
HM Treasury could go one important step further and update its mission statement: there should be a presumption for growth, not risk mitigation or an aversion to doing things afresh. Such a tweak would be especially helpful when the UK is already so indebted.
Thirdly, the UK should preserve its top-tier reputation for contract law. The predictability of the legal system, judicial independence, a wealth of case law and extensive international usage of the English and Welsh system should be protected and retained. Disputes – though unwelcome – are a near inevitability of doing business, whatever the size or scale of a firm. Having the best possible and timely legal recourse is vital.
These three criteria could serve as a selling point for the UK and help to boost exports for companies large and small. Importantly, both the previous government and the new administration have embraced freer trade recently. The Department for Business and Trade has agreed memorandums of understanding with eight US states (including Florida and Texas) and the legislation for joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership was passed in March.
In the same month, Rachel Reeves offered a strong defence of trade’s benefits: it “increases competition, aids the diffusion of technologies, and allows for gains from specialisation and comparative advantage.” So the political consensus is already there to ensure that British goods and services can be promoted and sold around the world.
Overall, any government would do well to heed the advice of Winston Churchill and his view of wealth creators: “Some see private enterprise as a predatory target to be shot, others as a cow to be milked, but few are those who see it as a sturdy horse pulling the wagon.”
Carl Richardson
Partner at Richardson Capital LLP