Budget winners? Small business & the role of the State

Budget 2010 was not the barnstormer it could have been. The risk of detailing a deficit reduction plan, specific enough to pacify the doubters of credibility, was obviously judged to be too great by Mr Darling and co. A shame, but no great political hit taken; Mr Osborne’s attempts this morning to distinguish his own vague plans from those of the government were even weaker than could have been reasonably expected (see Fraser Nelson’s take on this in the Spectator).

However, the partisanship of today’s headlines entirely ignores what is probably the most coherent, and well thought out, part of the budget: the help given to businesses, in particular small companies, does not only make sense given where the pressures of the recession have been applied most firmly, but also highlights an important ideological difference between today’s left and right.

A £2.5 billion “package” to help skills and innovation sounds attractive, but without further detail merits little further comment – though some of the other measures announced really are compelling. Consider the doubling of capital gains tax relief for entrepreneurs; extending the 10 per cent CGT rate from the £1m to £2m of realised gains provides an £80,000 tax incentive for small business start up.

Or what about the reduction in business rates, aimed at reducing costs for the next twelve months for the smallest businesses; even the Telegraph has had to report the “cautious” welcome the measure has elicited in the business community. More eye-catching is the demand on state-owned banks to lend £94bn into the economy; although this is a gross figure (meaning banks could force loan repayments too) the creation of a small business “credit adjudicator” is an interesting measure to help deal with unfair credit refusals. And equally important is the extension of capital allowances to £100,000 – a targeted measure designed to incentivise and reward business investment at the SME level.

The reaction from those that matter has been strongly positive. Adam Marshall, the director of policy at the British Chambers of Commerce called it a budget “that had small and medium-sized businesses at its heart”; the Federation of Small Businesses’ spokesman Stephen Alambritis said they were “pleasantly surprised” with the measures announced. Even Richard Lambert, director-general of the CBI, offered some praise:

“There was more support for business than might have been expected, with a series of modest but helpful changes. The doubling of entrepreneurs’ CGT relief will help investment in small businesses.”

But the most interesting aspect of the above is that contrary to the focus on plans for deficit reduction, it is in policy decisions like the extension of capital allowances for small businesses, rather than simply cutting corporation tax across the board, where the difference between Labour and the Tories is most distinctly observed. The Labour Party appears to have recognised that leaving all decisions on capital allocation to private enterprise is not necessarily the best approach. Recent experience supports this view. Directly encouraging businesses to invest through policy, rather than hoard cash or pay bumper dividends, is plainly what what the UK economy needs; simply cutting corporation tax, the policy advocated by Mr Osborne, is a blunt and frankly slightly outdated tool, particularly in the current climate.

What Mr Darling has made clear, perhaps too quietly for the mainstream media to pick up on, is that Labour believe the government has a role to play in restarting and supporting the economy. The rhetoric suggests the Tories disagree. Vote on that.