CBI withdraws general support as red tape smothers small firms

Article appeared on the Evening Standard web site.

Text of article;

IF a whale were suddenly to declare it was going for a walk, other denizens of the deep would say: 'Don't tell me, show me.' When a politician says he or she is going to cut red tape, that too is at best self-delusion. Paper is the element politicians move in, have their being, even if, like whales, politicians occasionally have to come up to the surface and blow off hot air.

Red tape is now such a groan under Gordon Brown that Digby Jones, director general of the Confederation of British Industry, says the CBI has had enough, and the Government can rely on its general support no longer.

The CBI will next week produce a report on small-to-medium enterprises (SMEs) which employ about 90% of the British workforce and therefore can generate the most new jobs if politicians would ease up on the red tape.

This report, Facing the Future, is likely to say that SMEs are being smothered, because they are run by a small team or even one person, much of whose time is taken up with seeing they don't accidentally break the law. Employing people just to fill in forms adds to costs without return.

Much of this bumf is EU-demanded labour legislation which, the CBI argues, overlooks the fact that SMEs do not always grow steadily and may have to fire people in between expansions. Employers have rights, as well as employees, it is argued.

The Forum of Private Business says the burgeoning number of employment regulations now costs members £125 and seven hours a week.

Accountants, who make money by understanding, explaining and getting around red tape, now say there is so much of it that it is no fun any more. It is also driving up costs to the client for time that should be spent on clever stuff such as helping to grow the client's business.

'Serious attempts to reduce tax complexity have been avoided,' charges Brown's own Treasury Select Committee of MPs, chaired by Labour's Giles Radice.

They also accuse the Treasury of failing to consult businesspeople before bringing in wheezes such as IR35 and changes in double taxation relief which can close down thousands of businesses. But equally naturally, there is little the Government can do, even if it wanted to, because new employment regulations arrive in the Westminster post from Brussels.

The Cabinet Office's red tape minister Graham Stringer keeps quiet about this. He confines himself to the spin that 'Britain is one of the least-regulated countries in Europe', that is, however bad it may be here, it could get much, much worse. Like, perhaps, when the Chancellor decides the 'five economic tests' have been met on the euro?

Adam Smith Institute tax specialist Jacob Breastrup says governments pile on the red tape to hide the true cost of government. At one estimate, favoured by Gordon Brown, taxes eat up 37% of gross domestic product.

Maurice Saatchi says this 37% is really 53%, but is made to look like the lower number by the ever-more byzantine web of allowances and exemptions. In other words, red tape.

That is one reason why arch-tinkerer Gordon Brown is so keen to dragoon people such as self-employed City IT consultants into PAYE and National Insurance contributions through IR35. People who pay tax weekly or monthly do not notice or mind as much as those who pay yearly just how big a bite Westminster and Whitehall take.

Millions of Inland Revenue self-assessment forms are likely to have been late for the 31 January deadline. That is because taxpayers find them too complicated, says Bob Rothenberg of accountants Blick Rothenberg.

With an automatic fine of £100, that is at least £100 million up to the Treasury.

The Finance Act, which puts into law the now-you-see-it-now-you-don't tinkering of each Budget, averaged 74 pages between 1945 and 1964. Government after government bangs on about cutting red tape, but the Finance Act now averages 289 pages, four times more than when government was avowedly 'interventionist'.

Breastrup, a Dane, favours a Viking solution to tax red tape: he urges Gordon Brown to take an axe to capital gains tax, inheritance tax, and insurance premium tax as well as betting and gaming duties.

Then Brown should set corporation tax at 10% (it is currently 30%, European average 27.5%), but only as a prelude to abolishing it.

Local property tax could supplant stamp duties, business rates and council tax, while VAT could be replaced by a 5% sales tax on consumption.

As if.

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David Hopkins

Webtastic Ltd