Official growth figures released today show that the economy contracted by 0.5% during the last quarter of 2010. The ONS attributes the contraction to the snow, but says that had the snow not been so bad, the economy would still have stayed static. If the first quarter of this year is also negative, we’ll be back in recession. The cuts can’t be blamed, because they haven’t started yet, but it’s clear that businesses need the government to get off their backs.
Begbies Traynor, the small business consultancy, estimates that small business insolvencies will rise by 10% in 2011, and unemployment is set to rise by 100,000 over the course of the year as well. Today’s figures show that cutting spending and fixing the state’s finances aren’t enough for the economy – the tax and regulatory burden on business has to be eased as well.
Here are four things the Chancellor can introduce in the March budget to promote growth and avoid a double-dip recession:
1. Abolish the 50p tax rate. It doesn't bring in much extra money, and it's making high earners move abroad, which means they'll invest in jobs elsewhere.
2. Abolish the employer's NI contribution. Correctly seen as a tax on jobs, the employer’s NI contribution adds to the cost of hiring labour, increasing costs to business and reducing the number of viable jobs available.
3. Cut corporation tax to 15%. Britain’s corporation tax is set to fall throughout the course of this government, but this should be accelerated and deepened to undercut the rest of Europe and attract multinational investment.
4. Reverse the CGT hike. Inhibiting economic activity at a time like this is countereffective and disincentivizes investment. This would be a shot in the arm for firms and entrepreneurs finding it difficult to raise capital.
George Osborne appears to think that taxes should be cut after the recovery, but cutting taxes is one of the biggest steps he can take to help spark a recovery in the first place. Times like this mean we have to be bold – we can't afford not to.