An unexpected upward blip in government borrowing, a double-dip recession, a little local difficulty with some of his Budget proposals and a baffling quote about listening – times are not good for George Osborne. And indeed, to be fair to Tatton’s finest, this is probably not the best time to be Chancellor. So the last thing he needs is pressure from the Conservative back benches to change policy, particularly as he has a coalition to convince even if he wished to do so. But he is getting such pressure whether he likes it or not.

We can expect a partial response to this in the form of an increase in government expenditure on long term building projects, and in particular an expansion of house building. But the real right wing pressure relates to a significant reduction in business taxes to try to stimulate growth and bring into play the virtuous circle that served Gordon Brown so well for so long, reductions in corporation tax resulting in increases in tax revenues.

I envisage various difficulties with such an approach, as follows:

  1. Trying to emulate Gordon Brown’s clever trick of cutting tax and increasing revenue is not going to be easy in a time of recession and very low business confidence. It is one thing to achieve this when everything in the economic garden is relatively rosy, and another completely to encourage investment when all looks gloomy. And of course if cutting tax doesn’t stimulate growth, the Chancellor will have reduced tax revenues to no beneficial effect.
  2. As I have thought for a very long time, cutting taxes for business is far from the be-all and end-all of stimulating investment and growth. Witness the recent Skandia Millionaires’ Survey, which placed high taxes fourth on the list of reasons why nearly half of UK-resident millionaires are considering relocating elsewhere in the world. Cutting taxes for the rich is not the answer to our economic woes.
  3. The inevitable response to calls for a reduction in business taxes is for Chancellors to cut corporation tax. But there are an awful lot of unincorporated small (and not so small) businesses in this country which don’t pay corporation tax, and will reap no benefit from such a tax cut. Class 4 national insurance might be a sensible alternative to look at cutting

 to benefit such businesses?

  1.  The on-going crisis in the Eurozone mean that escaping from recession is far from purely in 

 our own hands, regardless of what the Chancellor might do.

So I for one am highly sceptical of the benefits of cutting business tax further at a time like this. It remains to be seen how steadfast George Osborne is in pursuit of the policy he has set out and followed thus far, as well as a matter of prime importance to the future well-being of the country. No pressure then George!

Advertisements