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FLIGHT Howard 2

Lord Flight was Shadow Chief Secretary to the Treasury from 2001-2004.  He is now chairman of Flight & Partners Recovery Fund.

The economic competence of the Conservative and Labour parties has to be the overriding issue at the coming General Election.  This is not always the case: for example, consider the 1997 contest, in which a prosperous economy was taken for granted.

My rating of the two Parties is: Labour “nil points”, and the Conservatives “neuf points”.  The success of the UK in getting over the financial and economic crash has been remarkable.  It was the worst for the UK, partly because of the relative size of its banking and financial services sector and, partly, because in 2009 the Bank of England mistakenly allowed the money supply to contract significantly.  Voters should not forget, either, that Ed Balls was Gordon Brown’s “economic guru”, and thus responsible for the economic mismanagement leading to “the bust”.

Britain’s recovery since the crash is now ahead of that of Germany, and we have created more new jobs than the whole of the rest of the EU.  Entrepreneurial initiative is greater than at any time in my career.  We have created 1.5 million new companies in the last two years.  Many of these may not be new businesses, and of those that are many will fail; but the net new business activity, particularly in technology, is truly impressive.  This is not in just happening in London and the South East; it is taking place all over the country.

This is extremely promising for the future.  How a market economy works is that, inevitably, the giants of today become too big and often do not innovate sufficiently.  New businesses then see and exploit new technology opportunities.  Over time, today’s giants shrink or disappear, and the best run and most successful of the new ventures become tomorrow’s giants: this is the famous Schumpeterian “process of creative destruction”.  Self-evidently, a successful economy needs to be doing well on the new creative side.

The Labour agenda of stirring up class hostility and attacking the better-off and successful would turn Britain into another France, with many of our successful businessmen leaving the country to protect their assets.

I am, however, critical of some measures which the Conservative-led Government has taken, largely for the political reasons of seeking to accommodate some of Labour’s class warfare”propaganda and to counter accusations that it acts in the interests of the rich.  The new seven per cent top rate of Stamp Duty, which will apply on most homes in central London, is not only “a tax grab” but will, I predict, reduce Stamp Duty revenue as the volume of transactions diminishes dramatically.

The last Labour Government introduced sensible tax incentives for the renovation and putting into economic use of derelict properties in run-down city areas.  These are known as BPRA Schemes.  The tax incentives and rules were laid down in law by the Labour Government, although there appears to have been a lack of clarity.

The Conservative-led Government is, in my view, deeply mistaken to have introduced retrospective rules, accompanying last year’s Finance Act, and then to have used these to issue to BPRA investors what are known as APNs – in short, demands to repay often as much as 50 per cent of the tax incentive, based on the new 2014 rules – which did not apply when the Scheme was introduced. It is also mistaken to have provided tribunal reviews to consider appeals, which will be judged by HMRC executives, leading inevitaby to further appeals eventually to the courts, which the Government is then likely to lose.

In a different territory, the present Small Business Bill, mostly intended to help small businesses, contains a section imposing on all private companies, including the 1.5 million new small companies, an obligation to keep a public register of all controlling shareholders (control sometimes being legally difficult to determine) to be provided to the Company Registry and available to anyone.

Not only does this add, to little point, a regulatory burden on small companies, but also many may not be aware of the requirement – and failure to keep a Public Register will be a criminal offence.  The monitoring of potential terrorist or tax evasion money flows can only be effective when done by banks who have, automatically, the details of money flows over their clients’ bank accounts.

This legislation is, moreover, little more than window dressing to the NGO lobby, as it does not apply to non-UK companies.  The overwhelming majority of the innocent will be hit with further regulatory burdens; the guilty will use non-UK companies.

One of the reasons for the entrepreneurial success of the UK is that the Government has made it easier to set up a company/new business in the UK than in the rest of Europe, and has lightened the regulatory burdens on small companies.  It is, therefore, a mistake to now be imposing new regulatory burdens which will contribute nothing to identify terrorist or tax evasion money flows.

Finally, I very much hope, as we draw closer to the General Election, that the Conservatives will announce a commitment to raising the inheritance tax threshold to £1 million in 2016.  George Osborne must remember how popular this proposal was when he announced it in 2008 – frightening off Brown from holding a General Election.

3 comments for: Lord Flight: Economic management. Labour, nil points. Conservatives, neuf points. But here are a few reservations.

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