In the City
Still smaller business
Tony Rudd
'I am just a small businessman', said the voice on the telephone from Birmingham, `and I am getting smaller every day'. In today's economic circumstances this is all too true of probably a majority of small businesses in this country. The recession is going on too long for them to be able to stand it; they haven't got the resources to operate marginally or even at a loss month after month and, in some cases now, year after year. Only the large and the mediumsize will, in some areas, survive.
For the people directly involved the experience is shattering. It is all very well that we are now getting our house in order and to use other similar phrases appropriate to a good spring-cleaning. What is needed is a completely different language appropriate to demolition. The latest figures, which indicate that the decline in stocks has not after all apparently been reversed yet, mean that those small businesses which have managed to hang on thus far, the best managed and with the best labour relations, will start to drop one by one from the branches as the next winter approaches. What can be done about this? Nothing much. It's just the price of an industrial recession of extreme severity and overdue length. When a company like ICI stops handing out the ordinary bread and butter work which has sustained small engineering companies in the North-East for decades, the further spread of an industrial black death is inevitable. Whatever the economists may say about the need to avoid an inflationary stepping-up of demand, the fact is that when demand drops below levels so low that they have never been foreseen, there is no mitigating measure which can have any ameliorating effect.
All this makes the current move by this government to help small businesses ironic. Essentially these are based on the idea that certain tax incentives can encourage investment in small businesses and thereby replace what is dying in Northern England with new industrial tissue. Theoretically it sounds right. But in practice it's humbug. First, even if the new measures to encourage investment were to be effective and give rise to the creation of a number of new companies, it is very doubtful whether new births could in present circumstances achieve anything like the numbers of current industrial deaths. New enterprise tends to flourish in circumstances of industrial prosperity not at times of depression. Secondly there is a growing doubt now that the fiscal measures proposed are going to be effective in practice in increasing investment. Currently a great deal of discussion is going on concerning the appropriate passages of the current Finance Bill, with those who have a direct interest in the matter putting forward a number of amendments to the bill as first presented. Presumably, some of these amendments will be accepted. Because if they are not it is the expert opinion of most tax accountants that the present provisions will effectively limit to a minute trickle investment by those trying to take advantage of the new provisions. This is simply because the rules as now proposed are extremely complicated and, to put it bluntly, mean that the concession with regard to tax payment that is proposed for the investor in a new small business is doubtful and likely to be reclaimed from him in various circumstances. Quite apart from the fact that any intending investor using the proposed provisions will need if not his own accountant his own tax counsel, to make sure that the complicated provisions just won't regard the whole thing as worth the candle. Anybody who doubts this should read the relevant sections of the current Finance Bill.
It would be churlish to doubt the good intentions of the Chancellor. It would, equally, be unrealistic to doubt the present intentions of the Inland Revenue on the one hand, who want to make any concession 'watertight' and the officials of the Treasury on the other who, in their budget arithmetic, are unable to allocate more than a mite for this worthy cause, so tight is the national housekeeping situation. In other words there really isn't any money to give away for such a noble cause as encouraging investment in small business and even if there were, the Revenue would make it virtually impossible for any scheme to have more than a marginal effect.
The country's fiscal position may improve and so it may be argued it will be worthwhile to keep on pressing this administration to make good its promises to help entrepreneurs. The long-term problem, though, remains the Revenue. It has to be appreciated that the Revenue bears battle scars as a result of its successful struggle with the tax planning industry that mushroomed in the Seventies, which inevitably make it suspicious if not hostile to the writing of new concessions, however worthy their aim, that could conceivably be used to manufacture essentially false claims to avoid the paying of tax. The Revenue will go to almost any lengths in its drafting of the relevant provisions to make them watertight. Thus in the present case they start on the basis that some future Rossminister is going to use the concession. Inevitably the overkill which results makes the provision unworkable for normal commerce.
What arises from this sorry experience is the clear conclusion that if tax is to bear less severely on investment it can only be made to do so by some sweeping change which does not consist of tinkering with the present structure and thus give rise to problems with the Revenue but takes a whole category of expenditure out of the tax net. 'Keep it simple' must be the slogan. Interest on house mortgages up to £25,000 is allowable. That's simple. A similar provision making interest payments allowable against quoted shares of UK companies would be equally workable. Alternatively a provision similar to that of the French `Loi Monory', whereby so much Of the individual's income spent on purchases of shares in any one year is allowable, might also work. Whether these actual ideas would themselves be desirable is another matter. But what is clear is that, contrarY perhaps to one's thinking six months ago; only a straightforward simple measure will actually make the difference.
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