Austerity medicine needs sugar of practical support for businesses

Published on Monday 21 June 2010 21:19

WARNINGS of swingeing cuts, pain ahead and the most austere Budget in modern times have left no-one in doubt of the seriousness of the UK's financial situation and the determination of the coalition government to tackle the crippling levels of deficit and overall debt. But it would be a grave error if the Budget today did not also address the need to help business and entrepreneurs boost economic recovery.

The government is of course constrained in what it can do to boost the private sector. But at the very least it should deliver practical, positive measures to help business creation and expansion and put a bold, compelling marker down on sustained cuts in corporation tax over the next four years.

Today's Budget has of necessity to deliver on two fronts: one on bringing public borrowing under control, the other on helping the economy to deliver expansion and new jobs.

Cuts without business stimulus would risk hurtling the economy into a "double dip" recession. And advocates of cuts too easily overlook the effect that substantial reductions in public spending would have on many private sector firms that supply goods and services to government agencies. A study by Oxford Economics warns that 2.3 million private sector jobs are at risk from looming cuts.

Here in Scotland the poor rate of business formation is as worrying as the growing dependence on government and the public sector – an utterly unsustainable economic model. Government jobs in the capital have continued to multiply, while a record number of businesses have gone bust and business start-ups slumped 18 per cent last year, trailing the rest of the UK. More public sector jobs are just a quicker way to dig the grave for Scotland's economy.

Little of this grim reality seems to have yet dawned on the First Minister's Council of Economic Advisers. It spent its latest session in a self-congratulatory discussion of a paper on more fiscal powers while attention is urgently needed now on the crisis knocking on our door. Despite warnings from the Scottish Chambers of Commerce on swingeing increases in business rates for many firms and from CBI Scotland on the imperative to create a freer, fairer environment for business to generate the wealth that drives growth, the seriousness of our situation – and its urgency – is not being addressed.

At UK level, today's Budget needs to give positive help to the private sector. Hints at the weekend that it will contain measures to waive National Insurance costs for the first ten employees of firms outside the south east of England are encouraging, but much more is needed. There is a case for exempting business start-ups from tax for the first five years. And there is a compelling case for the Chancellor to signal his determination to slash the 28 per cent rate of corporation tax. This would help restore our competitive position, and a signal of determination would greatly boost business confidence.