The Relationship between Business and Government

It is a principle of our democracy that there should be no taxation without representation. While individual tax payers have a vote for their representation at local and national level, businesses, although most have a separate identity in law, are obliged to pay both local business rates and corporation tax without any say in the use that is made of these monies. A result of this is that there are plenty of examples where local and national government decisions are made to the detriment of business.

The Local Government Finance Act 1992 placed a duty on relevant authorities, the billing authorities, (including district councils), to consult persons or bodies which appear to them to represent those who pay non-domestic rates in their areas regarding proposals for expenditure. Note that this puts the authorities under no obligation to heed the wishes of business expressed during consultation. Indeed, there is little incentive for the authorities to do so as the non-domestic rate poundage level is set by central government and is not a matter for consultation at local level.

This difficulty could be overcome by electing a percentage of the local council by local businesses; the percentage being the same as that between the total of the non-domestic rate and the total of domestic and non-domestic rates collected. This percentage is likely to come above 40%. These councillors would be elected on a ‘business ticket’, pledged to forward business interests in their ward.

Businesses would be allocated a number of votes proportional to their business rates. These votes would be shared and cast by all the employers and employees of the business, but because the initial allocation was on a monetary basis, the influence of each member of the business would be weighted by their salary or wages within the business.

If successful at local government level, then the principle could be applied at national level on the proportion of business taxation to total taxation.

All businesses have to bear the cost of collecting and accounting for VAT, PAYE, SSP etc, besides the cost of interpreting and implementing all of the regulations that are imposed on them and the cost of compiling any returns that the Government requires. Not that any of these are to the benefit of the business in that they add to its profitability. They are all unproductive activities and are particularly burdensome for the small company that does not have a full-time administrator/bookkeeper – the owner usually has to do them in ‘spare’ time.

It would be logical for firms to be given assistance in carrying out this work, which they do for the benefit of the country as a whole, by the secondment of civil servants to them. This would have several advantages: it would expose civil servants to business, give first-hand experience of the effects of the legislation that they have framed, and would increase their versatility in that they would acquire experience of legislation from outside their department.

Firms would gain by a reduction of their administrative costs and in the reduction of learning time by having a resident expert. Where firms are too small to warrant the secondment of a civil servant full-time, then part-time assistance should be given, even if it is as little as one day per quarter.

This suggestion might even result in savings to the Government by a reduction in civil service infrastructure, as most staff would be out-workers.

Returning to the subject of small firms without a full-time administrator/bookkeeper, such firms should only be saddled with the tasks of dealing with personal taxes if they are willing to undertake those tasks. The responsibility for personal taxation lies firmly with the individual, particularly since the introduction of self-assessment, and all personal taxation matters should be left to the individual.

There has been and will be in the future much argument as to the level at which VAT registration should be set (it is an iniquitous tax, in my opinion, and may be the subject of another essay). Small businesses, particularly in the service sector, and just over the VAT registration level, have to compete with unregistered businesses in the same sector. To remain competitive, they have to absorb part of the VAT, which is a serious drain on their profits. To overcome this inequality and to overcome avoidance, all businesses should be registered for VAT, with the proviso that they get the assistance mentioned above.

Class 4 NI is, by the Department of Trade’s own admission in one of their pamphlets, a direct tax on business and has nothing to do with NI. It should be abolished. Taxation is far too complex anyway.

A business expands by reinvesting profits in itself. It is in the interest of the Treasury that business should expand and increase the gross domestic profit. Any profits that are ploughed back into the business should therefore be given tax relief, including those that are used to increase stock levels.

One of the most difficult things that the management of a business has to do is to keep abreast of all the current legal requirements affecting the business and of all the sources of assistance that are available from government and others. The Department of Trade would be performing a useful service by producing a quarterly summary of this information. This summary to be sent to all firms paying business rates and corporation tax, rather than the DTI relying on the variable quality and distribution of information given by trade bodies, who, after all, have no legal compulsion to provide this information.

We are constantly being enjoined by the Government to adopt the principles of ‘performance-related pay’ and accountability. There are, as yet, few signs that these principles are being adopted within government. Ministers, their Departments and local governments are constantly making mistakes without penalty. Mistakes that often cost both individuals and the general public dear. Numerous and well-documented examples have occurred in Planning, Inland Revenue, Customs and Excise, Health and Safety, MAFF (as was), the Foreign Office and others. The time is long overdue for government at all levels, and for government officials, to be made responsible in law for their actions, and for those that suffer from ill-advised, illegal or irresponsible actions by these officials to be compensated and for the compensation to be enforced by law. 

Civil servants may be able to write elegant essays but they are not selected for practical ability nor for organisational aptitude.  Whenever they get involved in a project it fails.  Their only talent lies in drafting regulations that are excessively complex, of little practical use, and generally incapable of efficient implementation.  One suspects that they are instructed to do so to ensure that their ranks are swollen and fully, but unproductively, employed.  Exposing them to the real world of business as suggested earlier should bring home to them the futility of their efforts.

© John Locke 2001