Andrew O’Brien, our Director of External Affairs, gives his thoughts on the Autumn Budget, arguing that to boost productivity and build inclusive growth the government needs to back social enterprise.
The Chancellor loves roads. So much so that he has promised £30bn to upgrading and supporting the development of the UK road network. It was one of the centre piece announcements that was announced in the Budget.
Hammond even summoned the spirits of the Industrial Revolution “Stephenson, Whittle, Lovelace and Faraday” to bolster his case. Frankly, if a Victorian time traveller found himself in the House of Commons yesterday, he would have felt very much at home.
Roads, railways and tax cuts appear to be the government’s answer to economic growth just as they did for Gladstone in his day. The sad truth is that the government has run out of road when it comes to stimulating economic growth.
Roads and railways are important of course and we do need to invest in infrastructure, but as the Chancellor himself admitted we are in the midst of great technological change. The 4th Industrial Revolution – as it has been called – is all about digital, 3-D printing, robotics and the interconnectedness of things.
It is ironic that the government is spending so much money trying to move people and goods around, when it is openly talking about a technological revolution which will lead to lower levels of movement. Infrastructure is not the silver bullet which politicians think it is.
However, the biggest lacuna in this Budget is tax reform. The Chancellor announced another £9bn of tax cuts for business over the next five years. He said it was a package that would “stimulate business investment”.
But the Office for Budget Responsibility has already confirmed that the Chancellor’s package is going to do nothing to stimulate business investment. If anything, it has revised down the level of business investment and productivity compared to the previous forecast. Some of this is Brexit related, but let’s not kid ourselves – it is a problem we have had for decades.
Since 2010, the Government has cut corporation tax by nearly £50bn according to the Institute for Fiscal Studies. But what have we got for these tax cuts?
The evidence is very little. Productivity has grown at its slowest level since the 18th Centuryaccording to the Bank of England. We have just come through the longest pay squeeze since the Victorian period. Unemployment may be down, but in work poverty is increasing.
Yet at the same time, according to Pantheon Macroeconomics, businesses are sitting on a cash pile worth £700bn. This at a time when profits have recovered back to their pre-crisis levels. To put it bluntly, businesses are taking tax cuts and using them to boost profits, boost dividends and boost bonuses rather than investing in the future. This is why productivity is so low and why wealth is not being evenly shared.
Giving more tax cuts to business to boost investment is like trying to fill the bath without putting in the plug.
We cannot boost productivity and build inclusive growth without a new type of business. It is the actions of the 6m businesses in the UK that will shape the destiny of the economy.
To give a practical example, imagine if just 10% of that corporate cash pile referenced above was reinvested back into communities and into businesses? That would see £70bn pumped into the economy. That is more than we currently spend on transport and industry at the moment. It is more than all the measures announced in this Budget combined.
The solution is more social enterprises. Businesses which are focused on improving society and the environment and committed to reinvesting their profits for good. We need to grow social enterprises and we need existing businesses to become social enterprises.
We need the government to talk the language of social enterprise, as SharpFutures CEO Rose Marley said in the Times yesterday. This needs to be done through the tax system – so that social enterprises are given lower tax rates than mainstream businesses so that they can be more competitive. This needs to be done through the way government spends money – we need more money to be spent with social enterprises so that taxpayers money benefits everyone. This needs to be done through finance – we need to encourage investors to put their money into social enterprises so that they can grow.
Only by changing the institutions that make up our economy, will we see better results.
All this matters because without higher levels of productivity and shared growth we won’t reduce poverty and we won’t have the taxes to invest in public services. The future will be permanent austerity.
We have come to the end of the road with tax cuts to stimulate growth. The government must turn the corner by backing social enterprise.
Director of External Affairs, Social Enterprise UK