Even when times are not as tough as they are now, most business people, when asked which tax they resent most, will list ‘employers national insurance’ and business rates (National Non Domestic Rates). I will deal with the former in another post, but business rates is seen as a tax on enterprise, because whether the organisation is making a profit or not, it must pay this “unfair” tax.

Business premises are given a rateable value. The amount of business rates payable is calculated using the rateable value and the multiplier, which is set by the government. Different multipliers are used for England, Wales, Scotland and Northern Ireland. The rateable value is based on the likely annual open market rent for the premises at a particular date. Currently the multiplier for England is set at 46.2%. There is small business rate relief available, but this does not benefit the vast number of businesses because the rateable (market) value has to be below £21,500 in London and £15,000 elsewhere. Even those that do qualify will receive a relatively small amount of relief, if they are lucky, a 25% reduction on the amount payable.

What many people do not realise, although the clue is in the ‘real’ name of the tax, National Non Domestic Rates, is that all this money is collected for central government coffers, by local authorities. The money collected is then pooled together by Central Government before being distributed to local authorities on a pro rata basis to help pay for the local services. In other words it is a Central, Government tax, which is subsequently used to subsidise local services, not based on the amount collected, but some arbitrary percentage of the total determined by Central Government.

The reason so many business people object to this tax is, that it is not a tax based on profit, number of employees or a service provided directly to the business. Instead, it is a tax that must be paid simply for the company operating out of what is termed ’business premises’. It is not even applied equally. For example, a business that has to invest in large capital equipment will need larger premises, therefore they must pay more tax. Similarly, a business that has larger premises to house a larger workforce will also be penalised at a higher rate. No cognisance is taken of whether the company is profitable, how many local people are employed or its indirect contribution to the village, town or city. The tax payable is determined only on a multiplier of the market rate for the premises, the size of the premises is normally determined by the amount that the entepreneurs’ have to invest in capital equipment or people.

Ask any employer and, after their workforce costs, the highest other overhead is the building and they are then ‘taxed’ on this cost at a rate of nearly 50%. Most will tell you that they receive very little in return, they even have to pay extra to have their rubbish collected! Worst still, even though business rates are supposed to include an element of investment in the emergency services, I can provide countless examples where crime against business is considered a very low priority for the police, even if it involves criminal damage, theft or fraud. Crime against business does not figure on the police radar because it is rarely of public concern. Instead it is treated almost as a victimless crime and therefore, most crime against business is not included in government statistics and as a consequence police targets, unless there is a crossover, for example an employer is threatened with a knife.

Many businesses are trapped when it comes to reducing or trimming the costs associated with their premises. For example, they may be on a fixed term lease, or they cannot downsize because the cost of relocation would exceed any financial gain from a reduced rent and business rate cost. Even if they no longer need such large premises because they have downsized, they are trapped into retaining the existing premises and paying a penal ’business’  or enterprise tax simply for surviving.

There is simply no logic in penalising businesses based on the size of their premises, having no regard as to the profitability of that company. For example, a reasonable sized business paying a rent of £35,000 per annum would be expected to pay a further £16,170 in business rates, this would be equivalent to corporation tax on profits of nearly £100,000. How can any government consider that a fair tax? Because the tax bears no relation to income or profitability, it can only be described as an enterprise tax and at a time like this, it is completely unacceptable.

If the government is serious about helping business, then the first step must be to look at any enterprise taxes, the priority has to be business rates, followed by the tax on employment, known as employers national insurance. A failure to look at these taxes at a time of recession will ensure that there are few businesses left to pull us out of the recession. The problem business people have, is virtually every government ‘business or enterprise department’ is staffed by civil servants, mostly career civil servants, who have never worked in, much less run a business. Worst still, even though the civil service brag that they want to encourage people from the private sector to join, the job descriptions and applicant profiles are written in such a way as to exclude those with private sector experience…another classic case of smoke and mirrors.

The Labour government ignores the plight of the so called small and medium sized businesses at their peril. Forgotten amongst the many problems facing the UK economy are the 3.6m SME’s, many of which are struggling to make ends meet and the government could do more, but choose not to.

Many SME businesses are bound in a mountain of red tape to do with tax, VAT, employment and paternity rules, health & safety issues and the many other headaches passed onto them by the government departments of this Labour administration. The vast majority of the people that work in these government departments haven’t got a clue as to the value these business owners add to the UK economy (some £1100bn per annum) and for that matter, couldn’t care less. Ask any business that exports products to the European Union. Because of the problems associated with ‘carousel fraud’, something that was very much related to the mobile phone industry, the VAT office now passes the burden for VAT checking onto the business owner. Often the VAT office will instruct the business owner to charge another European company VAT, the latter objects, the VAT office stands firm and the order is lost for ever.

Add to that the raft of existing and new health & safety rules. If the company employs more that 5 people, they are literally swamped with rules and regulations. The business owner now has a choice, they can ignore them at their peril, or employ a consultant, a full-time health & safety officer or digest the rules and do it themselves. Instead of driving the business forward, the business owner is expected to spend valuable time and resource on what can often be described as, unnecessary health & safety rules. Don’t get me wrong, some of these rules are necessary, but they have now become so burdensome that they are suffocating many small and medium sized businesses.

If that was not enough, what of business rates? These often account for some 50-55% of the lease or rental costs of the office, factory or industrial unit. Ask any business owner what he gets for his money and he will not be able to tell you. They are even charged, often 3 times as much as the cost of a private contractor, for collecting their waste. If they suffer from anti-social behaviour, vandalism or the like, they cannot get a police officer to investigate, because they are too busy with their own paperwork, instead, if they are lucky, they might get a visit from a well-meaning, but utterly useless Community Safety Officer.

On top of all that, tax breaks for small and medium sized businesses are virtually non-existent, removed, for the most part, by this Labour government. Therefore, you have to ask these business owners why they bother, it is probably because they are so far in, they cannot extract themselves without losing everything!

Apart from the red tape burdens, small businesses are invariably at the mercy of larger businesses. Many, especially when things are tough, or their year end is looming and they want to maximise their cash reserves, pay their invoices late. Some SME’s will tell you how they have to wait for 6 or 9 months to get paid by companies, that can, but won’t pay until they absolutely have to. More businesses fail as a result of poor cashflow that for virtually any other reason. You can have a sound business, but if you don’t get paid in a timely manner you are in trouble.

So, maybe they could consider factoring, this is one way, if expensive, that SME’s can get the cash they need to survive. But this is now becoming more and more difficult as the banks increase the criteria, raise the interest rates and reduce the amount of money available. In addition, banks are increasingly asking for more and more security, which can include a fixed and floating charge or some other form of personal surety.

New Labour in general and Gordon Brown in particular has made much of how “our policies” have allowed small and medium businesses to thrive. This is quite simply a lie. Business owners have set up their businesses and developed them in spite of the governments high taxation, red tape and indifference, not because of any initiative introduced by this government. SME’s have been very much on their own, but I suspect that many will feel, more than ever, the abandonment that is the New Labour policy towards the SME sector. I predict, that unless there is dramatic, sustained and immediate action by this government in relation to the SME sector, that more will go to the wall than at any other time in our history and the responsibility can be left firmly and squarely with Gordon Brown when he was chancellor and New Labour.

The government may need reminding that there are estimated to be some 3.8m SME’s in the UK, of which over 99% employ less than 50 people. Some 3.6m actually employ less than 10 people and a further 167,000 less than 50 people. Yet, the SME sector accounts for nearly 99% of all UK businesses, some 12.6m employees and an estimated contribution £1100bn or eleven Northern Rock’s. Many of these same companies are suffering and if their failure rates continue to rise, this will have a direct affect on unemployment and tax revenues. In terms of the latter, the government would do well to remember that many small businesses and SME’s do not have the benefit of fancy accountants looking at ways to reduce their corporation tax.

If just 10% of these businesses fail due to the continued indifference demonstrated by this government, there will be an increase of 1.3m unemployed. Quite apart from the personal affect on each and every one of these individuals, the government, via the taxpayer will have to support these people until they can find alternative employment, which will provide a further burden on the remaining taxpayers, plus the government will no longer benefit from employees tax, employees NI, employers NI, VAT and corporation tax.

For every business owner that suffers a business failure, you can fairly certain, that a good proportion of them will not try again and that means that some of these employment opportunities will be lost forever. Gordon Brown always likes to take the credit when things go well, even if he had nothing to do with it, it is now time he put something back and helped these businesses before it is too late.

If you have heard him say it once, you have heard him repeat it 100 times. Gordon Brown keeps telling is that the UK economic fundamentals are strong. Now I am no economist and that will become self-evident when reading this blog, but I am blessed with a little commonsense and logic. My conclusion, the so called fundamentals don’t look so great from where I am sitting, so common Gordon enlighten us.

At the CBI Scotland Annual Dinner, Gordon Brown outlines what he considered those fundamentals to be, they are;

“First, Bank of England independence has given us low interest rates founded on sound macroeconomic management and so despite increases in the prices of food and fuel - and I understand the impact this is having on families and businesses - the sound framework for monetary policy which we have established means inflation remains far below the double-digit levels we saw in the earlier decades. And this will help ensure that interest rates remain similarly low by historical standards.

Second, the most flexible labour market in Europe means that even though unemployment has risen in recent months, employment remains close to record highs - and wage pressures are subdued, led by our own responsible decisions on public sector pay. And with the investment in the New Deal and our latest welfare reforms there is more support than ever before to help people back into work and to fill the 600,000 vacancies still in our economy. And a balanced approach to migration allows businesses to benefit from the specific skills that economic migrants can bring to our country and improves the responsiveness of our labour market to fluctuating demand.

Third - the underlying financial strength of British business reflects its improved efficiency - driven by your hard work in achieving the fastest growth in average productivity in the past decade across the whole of the G7. Britain remains a magnet for overseas investment and our export performance is improving, with our manufacturing productivity growth strong.

Fourth, low debt. The significant debt repayments we made since 1997 mean we have cut public debt as a share of national income from 43 per cent in 1997 to today’s 37.3 per cent. This means that, unlike in earlier economic slowdowns, we can sustain our ongoing commitment to investment in fixed capital infrastructure - up 58 per cent in real terms in the last decade. In 1997 we invested £144.5 billion. Today it is £229 billion. Even after inflation a 58 per cent rise.

And - while  no government can hope to protect people from the full impact of the global credit crunch or the worldwide spike  in commodity prices - I am determined that we should do what we reasonably can to help families and businesses through this difficult period of adjustment. So we will back up our investment commitments with careful interventions designed to provide targeted support for hard-pressed families - such as this week’s home-owners’ support package and the £120 a year tax cut for basic rate taxpayers that will start to feed into pay packets later this month.

Fifth – we are making all the long term decisions, difficult as they are, to boost our competitiveness; on energy, planning, transport, housing, digital technology, science and skills. And the 2002 Enterprise Act has given us one of the most robust, independent competition regimes anywhere in the world. The support for British enterprise - strengthened over the last decade with the launch of Enterprise Capital Funds, the Small Firms Loan Guarantee and administrative burden reduction targets. Britain today has four and a half million businesses - more than ever before. And the OECD says Britain has the lowest barriers to entrepreneurship of any OECD country. ”

Now lets have layman’s take on this, as I said, I am no expert on economics, but I am one of the people that is expected to understand what the government is telling us.

Fundamental One

One of the primary movers in determining interest rates is inflation and as we have seen over the past few months, Gordon Brown is limited in what he can do to control inflation. Yes he can keep public sector wage deals low, but he cannot control commodity prices such as fuel and food, which can have, as we have seen, a significant impact on inflation. Furthermore, government borrowing can also affect inflation, but Gordon Brown’s fancy footwork has managed to keep long term debt such as the PFI initiatives off the government balance sheet. This may have the affect of massaging government borrowings, thereby providing a knock-on affect in terms of lower interest rates.

Fundamental Two

Gordon Brown goes on to lecture us that the second part of the fundamentals is a flexible workforce, low unemployment, low wage settlements, economic migrants and welfare reforms. Really? Firstly, there is no explanation of what a flexible workforce is, but whatever it is, the government cannot claim the credit for it. The low unemployment figure doesn’t stand up to close scrutiny either. There are now 1.7, people out of work and on top of that those claiming disability benefits have risen to 2.5m, many of which, under the old system, would have been classed as unemployed. So, once again, this would appear to be a deliberate manipulation of the true jobless total.

Granted, the government can be credited with reaching low wage settlements with the public sector, although their ability to maintain these agreements may be questionable given the increasing militancy of the the public sector unions. But there is something else that Gordon Brown has omitted to include here. Many public sector employees benefit from excellent, final salary pension schemes and, even though many of these have been withdrawn in the private sector, Gordon has not had the courage to likewise in the public sector. Therefore, whether Gordon Brown likes it or not, it is an inconvenient truth that pensions are a cost of employment and it is estimated that our public sector pensions deficit is some £890bn, yet the government does not include this obligation anywhere in their figures.

So what about economic migrants, who do they benefit? Well yes, they benefit private companies that cannot or more likely, will not offer a wage sufficient to get ‘local’ workers to join their business, even though we have 1.7m unemployed. But what about the hidden cost, economic migrants can bring their families if they wish and many do, so when they are here, we must provide them with, at the very least, free education and free healthcare. So, in effect, by offering these benefits free, we, the tax payer are effectively subsidising employers looking for cheap labour. As the government knows only too well, these economic migrants could not possibly pay enough in tax and national insurance to cover the cost of these free benefits. If I was Mr Brown, I would be keeping my mouth shut, unless of course, he thinks we are all too stupid to work it out.

Fundamental Three

Gordon claims that we have the fastest growth in average productivity in the past decade across the whole of the G7. This may be true and therefore I will accept it at face value. But, can he really claim that their is an underlying financial strength in British business? Over the past few months, we have seen a high street bank have to be rescued by the tax payer, we have had a series of profit warnings from major retailers and manufacturers, we have had a number of high profile companies having to go to the stock market for more money to shore up their balance sheets and we have seen the failure of several airlines and the UK’s third largest travel companies. This doesn’t look strong.

In addition, we are now starting to see the highest level of business failures in over a decade, particularly small and medium sized businesses. Gordon Brown would do well to be remember that it is the SME market that has created many of the new jobs that he takes credit for, but also, because they cannot afford to go offshore or look at fancy methods of tax avoidance, they loyally pay their taxes. So what has he done for them?

Despite promised to the contrary, he has saddled them with a mountain of red tape, punitive fines and penalties for even the smallest misdemeanor in respect of tax or VAT returns. He has ensured through legislation that, the SME employer now has to have expensive experts on hand either as employees or consultants to advise on health and safety issues and employment issues as they have become one of the largest burdens on any small or medium sized business. In doing so, Gordon Brown, his cohorts and civil servants have demonstrated that they know nothing about running a business of this size.

Further, as a result of reduced central government funding to local authorities, business are having to pay ever higher business rates, even though they are getting less and less in return. Typically business rates now equate to 50% of the SME’s lease or rental costs. That is not business friendly, it is punishment. Far from taking credit for the business sector success, certainly in terms of the SME’s, he and his penal policies have made it increasingly difficult for them to survive as will be demonstrated over the coming months with a disproportionate number of SME business failures. You mark my words Mr Brown. This government also withdrew tapered tax relief a few short years after it was introduced to encourage entrepreneurship.

Fundamental Four

This takes the biscuit, Gordon Brown claims that government debt, as a percentage of national income has fallen from 43% in 1997, to 37.3%. As I have mentioned before, this is not a true figure, it is massaged. Mr Brown has become adept at using fancy footwork to ensure that government obligations do not end up on the government balance sheet. Now, I am not suggesting that he can’t do this, because he has, but what is the point in kidding himself, unless of course, the plan is to kid us? Between now and 2032, we will have to pay back some £170bn through the various PFI schemes used to pay for our schools, hospitals and other infrastructure projects. This doesn’t appear as a borrowing, so what is it? Then there is the debt from the failed Network Rail project and Northern Rock, as well as countless other obligations, why don’t these show up?

This man, even claimed in his speech, that he is using government intervention to assist families and business, bragging that basic rate tax payers will receive £120 a year in tax cuts. Have I missed something, this is the man that though he could rip us off using a classic trick of smoke and mirrors, got caught out and had to back down, Then he is trying to claim that it is some gift from the government. What an arrogant, deluded little man he is. 

Fundamental Five

This is really a more detailed repetition of Gordon’s ‘Fundamental Three’, but there are many more grandiose claims that do not bear scrutiny, but I haven’t got the time to analyse them one by one, so perhaps Gordon can enlighten as all be telling us how many of the 4.5m businesses he alludes to have actually been able to benefit from the Enterprise Capital Funds and the Small Firms Loan Guarantee? Precisely what red tape burdens has he removed and does this assessment include the new red tape this government has introduced.

I would also be very keen to hear precisely how this government can claim credit for boosting our competitiveness; on energy, planning, transport, housing, digital technology, science and skills. I don’t remember any of the companies operating in this sector thanking the government for their contribution. He also claims that our exports are improving, could this be anything to do with the fact that Sterling has weakened against all of the other major currencies, one of the primary reasons that our bills and inflation is rising, given we are a net importer of goods.

There are also other things that a government should be doing, such as planning. Gordon Brown makes no mention of the fact that as a direct consequence of his government’s prevaricating over nuclear power stations, there is a very real risk that we could suffer major power shortages in  3 or 4 years few years time, as the older power stations are de-commissioned and new one’s which take 10 years to build, are not ready. We could be reduced to third world levels of power shortages, with an estimated reduction of some 35%, affecting every family, every home and every business in the country. There is your legacy Mr Brown.

As I have stated at the outset, I am not a financial or economic expert, but when I analyse what Gordon Brown has said, against what had actually happened, I see a massive gulf. Therefore, this man must be deluding himself, or attempting to hoodwink the public. Either way, it is not good for us or our country. Step aside Mr Brown, before it is too late.