BusinessCompany NewsElection 2005: Knocking on heaven’s door

Election 2005: Knocking on heaven's door

It may seem like a one-horse race - but don't tell that to Michael Howard and Charles Kennedy who are still fighting to take up residence in Downing Street. We examine the three main parties' sales pitches on tax and the economy to UK plc


Tony Blair’s re-election campaign centres on delivery – and the fact that he claims he has kept his promises from previous elections in 1997 and 2001.

Just as Blair’s hair has turned from a dark brown to an ever-abundant grey, the cornerstone of Labour’s election campaign is the message that Britain has changed, and changed for the better since Labour’s return to power eight years ago. In the words of its manifesto, ‘the contract has been delivered’ and promises have been ‘fulfilled’.

Labour’s sales pitch is the strength of the economy, something it could not have realised without Mr Safe Hands himself – chancellor Gordon Brown. The chancellor has guided the country through testing times, providing above-average interest rates of 5.3%, low unemployment, sustained growth, low inflation and one of the strongest economies in the world.

Within Labour’s framework, it now promises to maintain its inflation target of 2% and continue to meet its fiscal rules. Over the course of the economic cycle, it says that it will borrow ‘only to invest’ and keep net debt at a ‘stable and prudent level’. In other words Labour is promising slow but sustained growth, as well as cautious but worthwhile investment.

The economy may be the government’s strong point and a potential vote winner, but Labour and its chancellor have faced criticism, mainly from business and the CBI, over its implementation of around 50 new taxes, which between them have raised an extra £50bn for a rainy day – that works out at an average of six new taxes for each year of power.

Labour has shrugged off this disapproval by again referring to its good friend and opposition deflector shield ‘the economy’, but it is promising several tax measures if it were to maintain parliamentary power.

It has said that it will continue to make ‘targeted tax cuts’ for families and, although its election manifesto does not clearly state how this will work, says it ‘wants’ a tax regime that supports British business.

Again going back to what it has ‘delivered’, it says it has cut corporation tax to its ‘lowest ever level’, introduced the best regime of capital gains tax in ‘any industrialised country’, and introduced a new research and development tax credit.

With Tory cries of £35bn of wasted public funds, Labour has implemented an efficiency drive under recommendations from Sir Peter Gershon, ‘to root out’ waste and ‘liberate’ over £21bn for investment in frontline services. But this will mean severe job cuts within the civil service and the redeployment of thousands of Whitehall posts across the country.

It also prides itself on championing enterprise and creating 300,000 more businesses than in 1997. Although small businesses potentially face stiffer regulation including IR35 and section 660A under Labour, for example, it says it is tackling financing barriers for small and growing businesses – particularly enterprises in deprived areas. It will also continue to use the Business Link network to offer start-ups, social enterprises and small businesses access to ‘tailored intensive support and coaching’ to foster the entrepreneurs of tomorrow with every college and university twinned with business champions by 2006.

James Bennett

The Conservatives are aiming for the hearts and minds of businesses from two angles in their election manifesto. Firstly, small business taxes must be simplified, while the onerous burden of regulation on larger businesses will be cut if Michael Howard and Oliver Letwin are handed the keys to number 10 and 11 Downing Street.

The Tories point out in their Small business taxes – a new direction consultation paper that VAT and corporation tax have become ‘more complex’ under Labour’s rule.

The Finance Act, for example, has grown to a briefcase-busting 634 pages, compared with 151 from the 1960s through to the eighties. The Conservatives also suggest that this increased complexity has led to a 42% increase in membership of the Chartered Institute of Taxation.

‘Conservatives understand that complex taxation, like heavy regulation, prevents business from running well,’ the party declared in small business paper.

Controversial taxes, such as IR35 and settlements legislation on husband and wife businesses, have hit businesses hard.

And the Tory answer? To make small business taxation fairer by considering the abolition of IR35 or simplifying the calculation of corporation tax and giving small businesses a lower tax rate. The estimated cost to the public is £340m.

Of the Conservative party’s five main objectives, which form the heart of its election manifesto, the interests of business fall mostly into its fifth objective – to ‘cut red tape’.

‘Labour’s “better regulation” agenda has meant more regulation,’ says Stephen O’Brien, shadow secretary of state for industry. ‘It is time to break this vicious cycle of over-regulation and to halt the harm being done to UK competitiveness and productivity growth.’

A large-scale restructuring of the DTI is planned to ‘champion not regulate’ business, while shadow chancellor Oliver Letwin will work hard to deal with one of his hobby-horses – the inefficiency of central government, which he believes eats into public spending.

At an event attended by a host of finance directors, Letwin promised to make a ‘fat’ government ‘thinner’ in a bid to create a stronger-performing UK economy.

He added that the Labour government has so far appointed 300,000 public sector staff that are ‘put hard at work behind desks producing paper’.

So while Conservative leader Michael Howard attempts to wrestle with the emotive subject of immigration on an almost daily basis, right-hand man Letwin continues to struggle to get businesses onside.

Letwin’s focus on the economy will prove to be key. Or, to be more precise there are actually twelve billion keys. He says that the Tories will spend £12bn less than Labour if they get in. This would lead to £4bn in tax cuts with £8bn ‘left over’ to help plug the ‘budget black hole’ that the Tories believe cannot be filled without less public spending.

Kevin Reed

The Liberal Democrats have put business at the forefront of their economic policy leading up to the general election – vowing to scrap the DTI, slash regulation and simplify taxes.

‘Liberal Democrats want to create a new environment for business,’ the party’s leader Charles Kennedy says in the Lib Dems’ election manifesto. ‘A strong economy, with robust financial controls is only the first step. We want to set business free to get on with the job of creating prosperity and jobs, innovating and trading across the world.’

To achieve this goal, Kennedy’s party is putting forward the radical proposal of abolishing the DTI completely, and splitting the functions between other departments.

‘The DTI has become a frustration for the business community. It bears all the hallmarks of a meddling, centralising, over-regulating government,’ Kennedy said.

Should the Lib Dems come to power, employment matters will be allocated to the department for work and pensions, energy matters will be dealt with by a new department for environment, energy and transport. The department for education, meanwhile, will take responsibility for science and research.

The party will maintain a deregulation unit in the Cabinet Office and make the chief secretary to the Treasury the ‘advocate for business at the Cabinet table’.

In addition to scrapping the DTI, Kennedy and the Lib Dems have other regulatory changes in their sights – including sunset clauses on all future business regulation.

The party says that too often regulations were ‘imposed on business without an assessment of their impact’, adding that some regulations outlived their relevance and tied up business in unnecessary red tape.

The party will thus introduce sunset clauses on all regulation, which will see them expire automatically unless renewed by parliament. Independent impact assessments before any new regulation is implemented will also be required. ‘Unnecessary regulatory burdens consume wealth rather than create it. As the burden of regulation has grown, new requirements are imposed with no thought to the effect they will have,’ Kennedy says. ‘Regulation too often becomes a permanent feature, whether or not it is still needed.’

Small business in particular stands to benefit from this policy. The Lib Dems are promising to review all red tape on businesses that have started up within the last 18 months and establish a small business select committee to examine government actions and monitor the cost of bureaucracy.

Businesses with a rateable value of less than £25,000, meanwhile, will be eligible for a business rate allowance which could save them as much as £600 a year.

On the tax front, a simplification of tax policy is proposed to address concerns over ‘the increasing complexity of business taxes’. The Lib Dems will increase the income tax rate for earners above £100,000 to 50%, but have refused to even consider windfall taxes. ‘Liberal Democrats oppose the concept of windfall taxes. They are arbitrary, unfair and penalise successful businesses,’ the party says.

Nicholas Neveling

With many of the electorate disillusioned with the main contenders in the 2005 election, between 7% and 10% of the public is expected to vote for the minority parties on 5 May.

Led by Roger Knapman, the UK Independence Party is the most outspoken of the smaller groups and has a strongly nationalist manifesto tagline of ‘let’s get our country back’. It is purely focused on the UK’s interests and is staunchly anti-European, promising to withdraw Britain from the European Union within two years.

It claims that the UK’s membership of the EU costs the country over £30m per day and says this money would be ‘better’ spent on the ‘needs’ of British taxpayers. On taxation, it says it would cut council taxes by half, scrap the 10% income-tax bracket, raise the threshold for inheritance tax to £500,000 and raise borrowing to provide £30bn in immediate tax cuts.

Apart from placing compulsory solar panels on every new building, the Green Party also has serious plans for the economy and would focus on a ‘rebalance of power’ in favour of ‘human-scale small and medium-size business’ instead of multinational corporations.

It would phase out VAT in favour of ‘eco-friendly taxes’ and increase taxes on incomes above £50,000. The planet’s resources are at the heart of its policies and it says it would spend the current £30bn road budget on public transport and support walking and cycling, while it would also bring railways back into public ownership and tax aviation fuel.

Veritas, the so-called ‘straight-talking party’ led by former chat show host Robert Kilroy-Silk, says it would raise the income tax threshold and take more than one million low-paid workers out of tax, while scrapping inheritance tax and work towards a fairer ‘flat tax’ system at the same time.

Other minority parties are slightly off the wall, with the Monster Raving Loony Party’s ‘Manicfesto’ saying it would issue a 99p coin to save on change and only pay tax credits to ‘nice people’ ruling in favour of a ‘total bastard’ tax for everyone else. Unscrupulous fat cats should watch out.

James Bennett

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