The Labour Party’s relationship with business has shifted significantly since Tony Blair made it a priority to cosy up with big corporations. Ed Miliband has been a vocal critic of banks, energy companies, and some consumer credit companies.
He’s also scared the City with talk of rent controls to combat the growing cost of living and seizing land from inactive developers to address the country’s lack of affordable housing.
But on the other hand the party has been keen to portray itself as a champion of small and entrepreneurial businesses.
Chuka Umunna, the well-respected shadow business secretary who is widely tipped as a future PM, announced in February that if elected next year Labour would create a US-style Small Business Administration, giving small businesses a dedicated role in the cabinet.
A desire to be seen as “the party of small business” is also likely to be behind the Labour’s decision to propose scrapping a planned cut in corporation tax in favour of a freeze on business rates.
Business rates are levied against the rateable value of the property inhabited by a business, regardless of how profitable it is, and can therefore be a particular squeeze on small businesses. Corporation tax is levied just on profits, and at a lower rate of 20 per cent for profits up to 300,000.
Speaking at London Business School today, Ed Balls, Labour’s shadow chancellor, said: When resources are tight this is a tough choice to allow us to support more businesses and keep our overall business tax regime competitive.
Labours approach will be to develop a business tax system that promotes long-term investment, supports enterprise and innovation, provides a stable and predictable policy framework for business, and which is founded on fairness.
Corporation tax has been cut substantially over the past few decades, from an eye-watering 52 per cent in 1982 to 30 per cent in 2009 and it currently sits at 21 per cent the lowest in the G7 group of developed economies.
Although the current rate is the lowest it’s been in recent history, there are concerns that Labour’s plans to cancel the planned cut could send the wrong message internationally and disadvantage the UK’s competitiveness as whole.
When the plans were first aired last September John Cridland, the CBI’s director-general said they were divisive.
He said: The success of many smaller firms goes hand-in-hand with that of larger firms through supply chains and it’s important to remember that large firms employ ten million people. To be pro-enterprise Labour must speak for all businesses.
Balls also used today’s speech to suggest that Britain needs less of a short-termist attitude when it comes to business. He said: Our tax system must tackle the short-termism that has become an entrenched feature of the UK business environment and instead promote the long-term investment we need to create more good jobs for the future.
He suggested that measures to tackle this could include a cut in capital gains tax to further incentivise investors, and an allowance for corporate equity , which he says would reduce the systemic bias in favour of debt finance.