26 Mar 2012

Editor's view: The Odd Couple

After the budget, there are still many questions to be answered about the relationship between business and government

Unless you’ve been living in a cave recently, it won’t have escaped your notice that last week the chancellor, George Osborne, delivered his third budget.

And while the front-page headlines focused on the so-called granny tax and the drop in the top rate of tax from 50p to 45p, there was also plenty in the budget speech about business. Indeed Osborne started and ended his speech with several references to how Britain had to start "earning" its way in the world if it was to get out of trouble.

Despite the fact that he sounded like a parent berating a lazy teenage son, the intention of his rhetoric was clear. Government actions across a wide range of areas—including cutting corporation tax, simplifying accounting procedures for the smallest businesses and investment in infrastructure projects (notably ultra-fast broadband in 10 major cities)—would create an environment to attract businesses large and small to these shores.

As if on cue, the next day pharmaceutical giant GlaxoSmithKline released plans to invest huge amounts in new UK facilities, citing lower levels of taxation as a major factor (pharmaceuticals was an industry sector picked out in the budget for special mention and special treatment).

On the same day there was further grist to the Osborne mill from KPMG, as the accounting firm produced its latest Competitive Alternatives report, which ranks countries by cost competitiveness.

It's an uneasy relationship and it's unclear who benefits most

Editor's View

The report has the UK ranked as the cheapest "mature economy" in which to do business. Overall we were sixth, beaten by China, India, Mexico, Russia and Brazil. Part of the reason for this good news is that we’ve had so much bad news in recent years. The severe recession has depressed demand and reduced costs for labour and industrial facilities, as well as effectively devaluing the pound due to the European debt crisis.

But the report also specifically highlighted lower corporate taxes.

Chris Morgan, KPMG’s UK head of tax policy, explains, "The UK’s top ranking among mature markets shows that the changes to the corporation tax system in recent years are having an impact and improving the UK’s competitiveness on the world stage.

"Announcements in the budget that the headline rate of corporation tax will drop to 24% in April take the UK below the global average rate of 24.5%. That is more good news for companies looking to establish themselves here."

As questions are again raised about the nature of corporate donations to political parties — and in particular the ability to buy influence over government policy— is it time to review the precise nature of the relationship between government and business? Even putting funding issues to one side, the ritual displays of senior politicians parading around factories, offices and building sites alone prove how much politicians need business.

But how does it work the other way? Does business need government as much? The standard response from many in business about what government can do for them is "get out of the way" and yet, as the latest budget and to some extent the current funding scandals suggest, businesses continue to lobby government and are apparently willing to pay whatever they must to access and influence where they can.

It’s an uneasy relationship and it’s unclear who benefits most from it. Government and business clearly need each other. But which side needs the other more and what that means for policy decisions is much less clear.


Richard Cree