DIRTY BUSINESS

Tony Blair says he's a friend of the

entrepreneur, but, says Neil Collins,

the Labour party hates profits

A PROFIT is not without honour, save in its own country. Tony Blair maintains that the war he is waging is for business, but to judge by his government's actions it looks more like a war on business. His attacks may lack the relentless carpet-bombing approach of the US air force, but they are dispiriting, constant and damaging. Not for the first time, it's clear that Labour thinks profit is a dirty word.

There is a tendency inside Labour which regards profit as the difference between what something ought to cost and what you have to pay for it. The Blairites seemed to have suppressed this instinct successfully, but, as the unions start flexing their muscles again, and with a Cabinet virtually devoid of anyone interested in business (let alone people who understand it), we are starting to erode the base on which our wealth is built.

In the early years of this administration, there were scores to settle. The vindictive swipe at the water, gas and electricity companies was revenge for their pulling the wool over the eyes of their regulators. The attack on pension-fund dividends was sneakier, but the funds had been asking for trouble by fiddling the rules to give themselves extra tax credits.

Today's war is on a different scale. In the front line is Railtrack, which has been comprehensively shot to pieces by a former polytechnic law lecturer who appears to believe that he has found a magic formula for a major enterprise. Stephen Byers, at the time of writing still (just) the transport secretary, coolly confiscated a business that had been valued in the market at £1.4 billion, with scarcely a thought for compensation to its legal owners. In its stead, he proposes a 'not-for-profit' business, whose sole advantage is that it cannot be accused of 'putting profit before safety' — the standard soundbite for rent-a-quote MPs when invited to speak about Railtrack.

This is dangerous nonsense. Profit is not some capitalist plot to oppress the customers or impoverish the workforce. but a measure of how much wealth a business is creating. Not-for-profit is fine for the local bowls club, but even the John Lewis Partnership knows that, without profits, it will die. A business that is not making a profit is consuming wealth, in that the cost of what it produces is greater than its value in the market. It has no future unless it can turn round; conversely, profits are the best guarantee of jobs, because they show that the enterprise is worth more alive than dead.

The profit motive is easy to understand throughout an organisation. Remove it, and you will attract only second-rate businessmen. Mr Byers is said to be prepared to pay £1 million a year to the chief executive of New Railtrack — far more than his predecessors earned — for someone who will have no motive to try to run it efficiently.

This confiscation has spooked businessmen already apprehensive about the way that the government keeps piling on additional costs. The list of direct measures is impressive: the working-time directive bestows rights to 11 hours' rest a day, an inwork break if the day is longer than six hours, and a right to four weeks' paid leave among much else. Other measures include the minimum wage, extension of maternity leave, time off for family tragedies and equal rights for part-time workers.

Then there are the less direct measures, all of which raise the cost of doing business. Into this category come such gems as the working families tax credit, stakeholder pensions, health-and-safety regulations and the cat's-cradle of rules about sick or disabled workers.

None of these measures will sell so much as a single extra widget, or speed up the service to the customer in the restaurant by a single second, but they add to the costs and risks of running an enterprise. They make it much more difficult to make a profit.

Much of this stifling legislation is framed as if every company were BP or Marks & Spencer, replete with personnel departments, company pension schemes and inhouse lawyers. The vast bulk of businesses — and virtually all of those which are taking on staff rather than cutting back — are not like this at all. They must pay outsiders to cope with the mathematical complexities of the working families tax credit, and half of Britain's 400,000 small enterprises are already breaking the law (from the start of last month) by not offering stakeholder pensions to their staff.

Big businesses complain, but they know that all this hurts their smaller competitors much more and that established companies have a better chance of passing the costs on to their customers. Meanwhile, the armies of regulators who are paid to enforce the laws on health and safety or the workingtime directive much prefer dealing with a few big businesses than with a multitude of smaller ones.

Worst of all is the familiar assertion that the new rules merely bring the law into line with best practice. 'Those employers who are already behaving well towards their employees have nothing to fear' is the standard refrain. If an employer wants to be generous to pregnant or sick employees, he does so because he believes it is in his interest: he thinks he can attract better people or motivate the workforce, and make more profit. Turn his practice into a legal requirement, and the generous employer suddenly looks mean, since he is merely offering the minimum the law demands. His goodwill has been nationalised, without compensation, to provide the warm glow that politicians get from spending other people's money.

It is not only employee 'protection' that is pushing up costs. Last week the sports minister, the superbly ignorant Richard Caborn, told the betting companies to fund research into 'gambling addiction'. Lacking the power to do this, he threatened them with new laws if they did not cough up voluntarily.

The other front on the attack on profit is more direct. This government has taken the raft of regulators it inherited from the Tories and has showered gold on them. With new powers, new departments and new budgets, they have extended their influence. The Financial Services and Markets Act is so complicated that it needs 2,000 employees to administer it, all paid for by the industry.

Other regulators have run crusades to cut the price of orange juice in pubs, or the cost of making a call to a mobile phone. If such charges seem high, the answer is not more regulation or government diktat, but more competition from others who spot the opportunity to make a profit. Unfortunately, the hurdles for the newcomers are now so high that it's a wonder so many still feel it is worth the effort.

Neil Collins is City editor of the Daily Telegraph.