Will businesses feel betrayed by Rachel Reeves’ budget?
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Entrepreneur Brendan May warns that Labour's first budget under Rachel Reeves risks alienating small and medium-sized businesses, the "beating heart" of the British economy.
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In brief:
- Entrepreneur Brendan May is concerned that Labour's first budget under Rachel Reeves will negatively impact small and medium-sized businesses (SMEs).
- Measures such as increased employers' national insurance contributions and capital gains tax may "kill" the entrepreneurial spirit and growth potential of SMEs which he argues are the "beating heart" of the British economy.
- There is a risk Labour's budget could alienate the business community, with fears it could drive talent and investment out of the UK if other countries offer more business-friendly policies.
What’s the story?
The Labour government’s first budget, announced on Wednesday, could harm small and medium sized enterprises (SMEs) - companies that Brendan May describes as the “artery that feeds the beating heart of the British economy”.
May is an environmental entrepreneur, someone who left his well paid job in a big firm to start up his own small firm. It went on to be a success and he sold it to a bigger company.
“To me, this is the kind of business we want, right?” he asks on today’s episode of The News Agents.
But he’s worried that Rachel Reeves is going to spook small and medium sized business owners pursuing growth.
However the Chancellor needs to raise money, repeatedly referring to the £22 billion black hole left by the previous government.
And it’s now widely believed that the long-awaited budget will see an increase in employers' national insurance contributions and capital gains tax.
“If you make a fundamentally unattractive proposition for entrepreneurs, either, because they're going to get taxed into oblivion on the gains that they've made building up these companies, or you're going to levy a lot of employer national insurance, which means they can't hire people or expand quickly enough, you're actually going to kill that.”
May argues that part of the problem is the lack of people in government roles, making these decisions, who actually have real business experience.
“I find myself slightly dumbfounded that there doesn't seem to be anybody in the government who actually understands what running a small to medium sized business is like, and the potential that these companies have to fuel the exact kind of growth that we keep being told that they want.”
“It doesn't feel very progressive, it doesn't feel very dynamic, doesn't feel very aspirational.”
Is the UK a 'crap' place to do business?
What is a “working person?”
Labour have tied themselves in knots over their campaign promise not to tax “working people” - they’ve explicitly stated that they will not raise income tax, value added tax (VAT) or national insurance for employees, but it’s left people wondering what exactly constitutes a “working person”.
“The thing I've been very cross about is this idea that if you own something, you're not a working person,” May says.
“At what point did Richard Branson or Alan Sugar morph from being a working person to a non working person?”
“[Entrepreneurs] love to work. We are working people. So when I get bracketed by the Prime Minister or somebody who potentially is not a working person, I genuinely, I have no idea what he's talking about.”
What does Labour mean when it says 'working people'?
What could Reeves do instead?
May argues that a rise in employers' national insurance would put the brakes on expansion and a rise in capital gains is “a tax on things that people have taken a risk to build up,” that have provided growth and value to the economy.
So what tangible deliverables would businesses want to see in the budget? Emily Maitlis asks.
Alternatives May thinks would be a better option include looking at landlords, at second homes and at tax reliefs and loopholes that exist in the hedge fund sector.
The big problem, he adds, is that the government has been “straitjacketed” by their promise not to increase VAT, income tax and national insurance.
“They [Labour] were terrified,” he says. “They didn't want to do anything that allowed Sunak or anyone else to say ‘they're going to put your taxes up’”.
He argues that the national insurance rise introduced under Boris Johnson, and then reversed by Rishi Sunak, could have been brought back.
“They could have simply said: ‘Sorry, guys, there's not enough money. We want to put this into the health service. We want to put this into education. We're going to have to redo this rise for a few years.’
But they didn't have the courage to do it.”
May is clear that his worries aren’t born out of greed.
“I don't come at this from some sort of neoliberal, right-wing Kemi Badenoch perspective. I'm the opposite. I am a paid up, woke remainer.”
He suggests that Reeves could have taxed high earners more, and that would be fine.
“That's very different to an all out assault on the actual vehicle that makes this growth possible in the first place.”
Is Rachel Reeves about to tear up a manifesto promise?
The News Agents Take
Emily says that May’s sentiments “reflect many of the conversations that I've been having with people in the world of business”.
Jon Sopel wonders whether the budget will encourage business owners to think: “‘Britain is a crap place to do business. I could set up in Singapore or wherever it happens to be. It will cost me a lot less. I'll make a lot more money, and life goes on’”.
And although May doesn’t think anyone will make that decision based on one budget, he argues that if there are countries with more business-friendly regimes, “British talent will eventually drain out there”.
May himself has not made that leap.
“He's not one of those people who is saying: ‘rise in taxes. I'm leaving this country. Britain is going to the dogs,’” Jon says.
“But he's obviously feeling that Labour are making a mistake in the way that they are framing this and the damage that could be done to the economy.”
Only time will tell with regards to the impact Reeves’ plans will have on small and medium sized businesses, but as Jon notes: “Having spent an awful lot of energy and capital trying to win over business, there is a real risk of alienating them as well.”
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