Reimagining the relationship between government and business

By Lorna Petty

The Conservative Party have long championed themselves as the ‘party of business’, a leadership fit for upstarts and established businesses alike, offering low tax and promoting the free market. In the turbulence of Covid-19, businesses have turned to the Conservative Government for support in uncertain economic times, and throughout the pandemic, they have indeed received huge amounts of financial and strategic support from the Government. However, Boris Johnson has certainly taken the relationship between government and business in a new direction, a move which has caused some to argue that Mr Johnson’s Conservatives are no longer the allies of business, but uncomfortable bedfellows.

Whilst this is a valid claim given the Prime Minister’s recent comments on business—namely the delicately-put “F*** business”—the unprecedented circumstances of our present times have seen businesses much more dependent on government during the pandemic, and the current tensions are arguably simply the Tories using the leverage they have gained during the pandemic to claim back their fair share. Announcing a £36 billion extra a year in taxation, with significant changes in national insurance and dividend tax rates, the Government is demanding a repayment from businesses and their investors for the help offered during the pandemic.

This is not a move away from business for the Tory party, but an equalising of the relationship between government and business and a re-assertion of businesses’ need to support themselves. But this is not the only shift in the Government’s attitude toward business; Mr Johnson is encouraging a British-led regeneration of workers, skills, and productivity, pushing investment in capital, training, and skills rather than dependence on low-cost migrant labour. In the wake of Brexit, which has curbed the influx of migrant workers to the UK and caused subsequent shortages in certain job sectors, Mr Johnson has posed a solution for business owners to whom he promised affluence in the campaign to leave the European Union.

“F*** business”

Boris Johnson

This direction taken by the Government also seems to suggest that businesses should place less focus on making their shareholders rich, and instead invest in better wages and upgrading operations to improve efficiency and quality. Mr Johnson used the example of the road haulage industry to make this point as he criticised “they haven’t been putting money into truck stops, into conditions, into pay – so there’s no supply of young people in this country who, frankly, at the moment are thinking of becoming truck drivers.”

However, according to a report by the Financial Times, there are also growing shortages of labour in white-collar industries such as law and accounting, an industry which does not traditionally lack candidates as a result of low wages or the need for training. So perhaps Mr Johnson’s attacks are unfair and do demonstrate a drifting of the Conservative Party away from their business-sector voters. Mr Johnson seems to be reasserting the necessity of business to be self-dependent and asking for government support over the pandemic to be repaid by high-wage, high-quality British businesses.

This ‘solution’ however, to the financial impact of Brexit and Covid-19 on businesses, is economically atypical and potentially fallible. The goal of high wages driving high productivity seems to have a fallacious direction of causality, in a sustainable model high productivity is needed to drive the increase of wages. Under Mr Johnson’s plan, Britain risks a loss of international competitiveness, persistent skills shortages and a stagnating economy; this is not to mention the consequences of the cost-push inflation inevitable in Mr Johnson’s model. A lack of workers from the EU will push up firms’ costs and increases in wages will therefore only add to the problem—creating further inflationary pressures—and ultimately mean no increase is seen in the real wage.

It is not Mr Johnson’s Conservative Party alone that is realligning its relationship with business

But, despite all these shifts in direction from the Government regarding business, arguably the sector has still taken a rather light burden from the post-pandemic Conservative government. Mr Johnson could have pushed much further in taxing wealth and raised considerably more funds; this suggests a readiness to maintain another key business-related Tory voting group: the asset-rich. The top bracket for income tax has remained the same, as has capital gains tax, despite the recommendations of the Treasury’s office of tax simplification to rise the latter.

So, whilst Mr Johnson may be using leverage gained during the pandemic to ask more of businesses, the Tories still remain supportive of individuals hoping to gain a large income through business-based work or enterprise. Furthermore, UK businesses still face among the lowest rates of corporation tax in the western world, despite a planned increase in the rate from 19% to 25%. They also face an offering of £25 billion super-deduction tax break which means that effective tax relief is actually currently at 25%. So, whilst businesses may feel targeted to pay back what they owe in the aftermath of locked-down Britain, the Conservative Party have certainly not abandoned them to the extent that the Tories can be ousted as the UK’s ‘party of business’.

Finally, one can observe that the Tories have, rather than moving away from its alliance with business, edged toward greater spending in public services. The conclusion of a long austerity period has seen voters demand better public services, willing to shoulder a greater tax burden in order to achieve them. This development is not exclusive to the Conservative Party in Britain; President Biden recently signed a bipartisan infrastructure bill passed by Congress – funded partly by raising tax on business. Moreover, 130 countries, including the UK and US, plan to impose a global minimum corporation tax rate, further suggesting that it is not Mr Johnson’s Conservative Party alone that is realigning its relationship with business, but a global movement toward an accountable, productive relationship between government and business.

Image credit: the CBI via Creative Commons.

Leave a Reply

Your email address will not be published.

 

This site uses Akismet to reduce spam. Learn how your comment data is processed.