Saturday, 9 June 2012

George Osborne and the Tory Economic disaster

We've had two years of the coalition Government and George Osborne as chancellor. How has he done so far? I doubt that anyone beyond the face grinning back in the mirror thinks he's been anything other than a complete disaster. Earlier this week a Tory backbencher gave an interview to the Sunday Times saying Osborne was lazy and useless. For those of us trying to run small businesses, his policies could not have been worse. Despite countless billions being supposedly pumped into the economy, it is virtually impossible to get credit from the bank. Having recently undergone a massive redevelopment of my studios I can vouch for this first hand. Despite having a rock solid business case, no debt and an existing cash flow which would support the loan, even if we failed to generate any new cash from the development, RBS spent a year mucking us around before saying "No". Their grounds "If you had a tenant like Tesco's moving into the site, we'd lend you the money, small businesses are risky".

I'm not the only person who has suffered this fate, people up and down the country tell a similar story. The only people the banks seem happy to lend to are businesses that don't actually need any capital. It wouldn't be so bad, but the government bailed these banks out with our cash. The bosses of these organisations are still raking it in. Osborne has been doing the job for two years and he's done nothing about any of this.

Even worse, for many small businesses is the effect of the VAT hike Osborne imposed in his first budget. VAT was increased from 15% to 20%. That effectively means that for may companies, especially in the services sector, you have to hand over 5% extra of your turnover to the Government. This means that you either put your prices up and scare off customers or you absorb the cost and get hit in the pocket. Take my business. We run a music studio. Typically a session in one of our rooms will cost approx £50 on a weekday evening in a larger room. George Osborne gave us the choice of putting up the cost by £2.50 - well above the rate of inflation or absorbing the cost and taking a hit in the pocket. A fifth of the cost to our customer is now VAT. As a business large enough to have to register for VAT, we give George a fifth of our turnover. We are competing with many studios who are one man band studios in single lock up garages, so we are in effect 20% more expensive. Many other businesses tell the same story. I was picking up a takeaway in Mill Hill on Wednesday and the boss of our local Indian restaurant was bemoaning the VAT hike and George Osborne. He pointed out that petrol costs are virtually all made up of tax. In short, anyone running a business gives 20% of their turnover to George Osborne in VAT, they give 4/5ths of the cost of their petrol to George Osborne, they pay corporation tax, employers NI and Business rates. We have a virtually incomprehensible tax regime. My company also has to deduct money from employees for the CSA, in effect doing the governments job for them, even though my employee's offspring are nothing to do with me. We have a plethora of rules and regulations to satisfy. When we opened our new building, we spent hundreds of pounds on signage, telling people such things as that they are about to enter a room with loud noises in.

And what has happened to the economy under George Osborne? It has sunk into recession. In the past, governments would spend years blaming the previous administration for such disasters. George Osborne can't because everyone knows that it is his fault. Yesterday I got a call from the Liberal Democrat Party. They were doing a survey as to why members had let their membership lapse. I said "The policies of the coalition government, do you want me to elaborate". The bloke on the other end of the phone said "No thanks".

Having run a business for 33 years, I can offer George Osborne (who has never run anything successfully) a little bit of advice. If you have any money at all for quantative easing, tax cuts or anything else, spend it on measures that will get the economy going and generate wealth. The ridiculous cut to the top rate of tax hasn't done this. The billions spent on quantative easing won't do this. Do things which generate economic activity at source. There are two things which will instantly help.

1) Cut VAT as much as possible. This will benefit businesses and consumers. It will ease families weekly shopping bilss and help the cashflow of ailing businesses.

2) Cut fuel excise duty. This will cut the transport costs of businesses, make commuting cheaper, reduce the costs for bus and train companies and give us all a few quid in our pockets. A 10p a litre cut in excise duty would give the economy a massive boost.

Both these measures would put cash in peoples pockets and boost businesses. Companies will be less likely to cut staff and more likely to hire them. That will reduce the burden of social security costs and further improve the state of the economy. It would also be nice to see a lessening of red tape, although I personally won't be campaigning for this, for the simple reason that every time the government (of both parties) say they will do this, they actually generate more red tape.

What I would do is remove the requirement for companies to collect money for CSA and other such things. I don't believe that this is in any way fair. I actually think it violates the rights and privacy of my staff. I've had three occasions where I've had to explain to staff that I am legally required to deduct money from their wages to support their offspring. As we are a small company and I know the staff well, they are completely humiliated by having to explain to me that they have been unable to agree child support arrangements with former partners. I don't think that it is the role of a company to have to pry into the lives of their employees.

Sadly there is no indication whatsoever that George Osborne gets any of this. What is George Osbornes recipe for economic recovery? Extra tax on cornish pasties. Has there ever been a more useless chancellor. I must confess that I was under the mistaken impression that having Vince Cable in the cabinet may inject a degree of sanity into the more bonkers realms of the Tory party. The sad truth is that the whole bunch have shown themselves to be inept. In the grim dark days of Gordon Brown's premiership, the then Chancellor Alisdair Darling cut VAT from 17.5% to 15%. That single measure prevented me from laying off one of my part time staff. Of all the many billions spent by the government on quantative easing and other "measures", that was the only one which actually benefitted my business and the businesses of anyone I know. I have come to the conclusion that, whether by accident or design, Labour is actually better for small business than the Lib Dem/Tory government we are currently lumbered with.

And if you are minded to disagree with my analysis, please preface your comment with how this government has been good for the company which you are running and what George Osborne has actually done for your business.

1 comment:

Anonymous said...

Cable has been effectively sidelined ever since he declared war on Murdoch. That much is apparent.

The Tories don't like small businesses. Small businesses don't cough up big contributions to party funds. Large corporations and chains do. I work in the restaurant trade in Bath and the independent restaurants have taken a hammering this year, mine included, whilst the local politicians spend cash on shopping developments that revolve around chain stores and restaurants.

Cameron and Osbourne together are a lame duck ticket for the next election. Their policies have been a disaster. Cameron prior to being elected wasn't popular with the Tory faithful because he wasn't Tory enough and some of his parachuted-in candidates upset the old guard hugely. The pact with the LibDems only strengthened this anti-Cameron feeling. Murdoch doesn't like Cameron and would happily see him fall.

It's set up for Boris. He's shown himself to be up the NewsCorp rectum, his bluster can win over people, he'd be riding on the crest of an Olympic wave, bad news stories seldom stick to him, and he's hardcore enough to please most of the Tory old guard. Given that the Lib Dems have no goodwill card to play after the way they shafted people at the last election, and Labour have nothing new to offer, a Boris leadership campaign would have some serious power to it.