Less regulation and lower taxes ‘help struggling businesses’

Eamonn Butler, Director of the Adam Smith Institute, picks out the factors pushing businesses into needing a turnaround.

People used to complain when Parliament sat only in the afternoon so that MPs could have second jobs in the morning. But now that MPs have become full-time politicians, few of them have any experience at all in working in the private sector. That is why they have smothered our businesses under taxes and regulations.

Vince Cable, Business Secretary

Regulation: is Vince Cable’s Department of Business, Innovation and Skills holding back British business?

If every small business in the UK took on one extra employee, unemployment would disappear, the welfare burden would be slashed, and the economy would revive. Our political class scratches its head wondering why this doesn’t happen. But the answer is obvious.

First, who is going to hire and expand when times are so uncertain? The euro boil really must be lanced: staggering from crisis to crisis damages us as much as the eurozone itself. And our government needs a clearer plan to pay off its debt. Despite all the talk of ‘austerity’, UK public spending continues to grow, even in real terms. If you or I are in debt, we know what we have to do – earn more, spend less, and pay off our bills. But nobody in Parliament nor the Treasury has any plan to spend less, much less reduce their debt.

As for earning more – the so-called growth agenda – where is it? Businessman Adrian Beecroft came out with some very sensible plans to rein in the abuse of industrial tribunals. But our professional politicians watered them down. They just cannot see the problem. They know that ‘unfair dismissal’ abuses cost firms money, but do not see that dealing with them also drains owners’ time and energy, and makes them much less willing to risk taking on new employees. Small firms feel that they take their life in their hands when they hire new people. That cannot continue.

EU Parliament building in Brussels.

EU Parliament: Dr Butler says that costs imposed by the Social Chapter are strangling UK businesses.

And we really have to get tougher on regulation. I believe the cost of the Social Chapter and the employment regulation turned the UK’s EU membership from a net positive to a net negative. It holds back our recovery. We should remove small businesses from nearly all of it. When people go to work for a small business, they work for something experimental.

They cannot expect to have the security that big firms can afford. Hours of work limits, equality laws, the demand to re-hire people after maternity breaks – these are all worthy ideals but they cripple small businesses who simply cannot afford the heavy-handed laws that try to promote them. So again, small firms simply stay small and avoid hiring. Common sense would achieve the ideals much better.

Tax complexity also drains business people’s energy from doing business to doing admin for the government. VAT, PAYE, NI – the alphabet soup of taxes, all calculated differently – are time-consuming, worrying and distracting. We need a flat tax that is easy to work out, and to scrap NI, especially for small businesses. 

 Money, used for business.

Taxing: Reducing taxes may help struggling small businesses, says Dr Butler.

Indeed, we must reduce taxes generally. People say the government could not balance its books if it cut taxes. But you cannot cut a deficit by raising taxes. Governments invariably spend everything they raise in taxes, then as much more as they can get away with. Cut business and capital taxes and you might at least create growth and boost capital formation.

I would love to see one of those TV reality shows make MPs try to run a small business. Maybe then they would understand the real problems – and the UK’s business sector would be turned around. 

Dr Eamonn Butler of the Adam Smith InstituteDr Eamonn Butler is Director of the Adam Smith Institute. He has authored books on the pioneering economists Milton Friedman, F A Hayek, Ludwig von Mises and Adam Smith, and co-authored Forty Centuries of Wage and Price Controls and books on intelligence testing.

During the 1970s he worked on pensions and welfare issues for the US House of Representatives, and taught philosophy in Hillsdale College, Michigan, before returning to the UK to help found the Adam Smith Institute.

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