This was supposed to be a boring pre-Budget report. With all the obvious tax changes out of the way, the working families tax credit safely launched and the economy apparently running smoothly, what would the chancellor have to say? We switched on the TV and sat back, expecting another dose of prudence. Well, we were surprised. Barely a mention for prudence; and a genuine sense of forward motion in the chancellor's planning, something which was missing from the Budget earlier this year. For me there were three areas where there were clear developments in the government's thinking and in two of the cases this seems to have come about through the consultation process. That must be good news, because too often in the past two years there has been a sense that we've been asked to rubber-stamp changes which have already been decided on. The most positive set of announcements dealt with support for the principle of entrepreneurship and the knowledge economy. It is key to this country's future economic development that we harness talents and energies, by encouraging enterprise and the development of jobs in the businesses of the future. None of these on their own were particularly startling. You can look on changes to share schemes, venture capital funding and the rest as micro-economic tinkering. In some sense they are. But as a group of changes they send a strong message that the government is trying to support enterprise and initiative. Do I think they'll work? I doubt they'll undo the damage caused by IR35. The proposals on corporate venturing and research and development tax credits were interesting because they came from the consultation process with improvements. The restrictions on investments by corporate ventures have been significantly relaxed. The upper limit for R&D tax credits has been more than doubled and the range of companies that can benefit has widened. It still isn't clear whether companies not in profit can actually set the R&D credit against their PAYE/NIC liabilities to avoid cashflow difficulties, but there will be further consultation before the legislation is finalised so we can hope for clarification. The second area where we saw movement was in the various environmental taxes dealt with in the report. I'm sure the government would characterise the situation here as one in which they had listened to business' legitimate concerns, and then decided to revise the climate change levy, to ditch the fuel escalator and to give the aggregates and pesticide industries another chance to talk their way out of a tax. I'm sure the opposition would characterise it as a U-turn. The principle stands, but the practice has taken a pounding. My worry is not with the principle of environmental taxes, it's with the problems you get when you bolt one kind of tax straight on to a system designed for a completely different kind of tax. We can have an interesting dialogue with government about how you tax inputs rather than outputs, but the first step in achieving that is to tear up the system you've got. Until the government realises this, it is always going to have difficulty selling taxes like this to the business taxpayer. It doesn't help that the revenue is not being 100% recycled directly to the payers in the form of support for energy efficiency projects. If the government thinks the rate of employer NICs is too high then it should fund the reduction out of the general pot. The final area which intrigued me was the simultaneous announcement of Lord Trotman's review of the policy environment for small business, including tax and business support, and Lord Grabiner's review of the informal economy. It's difficult to decide who has the harder task of the two. Lord Trotman has a plethora of services, taxes, regulations and support networks to wade through. I also note the Small Business Service is expecting to carrying out its own survey of the support available, so he may have company. He ought to argue for simplification at every opportunity. If he can make the case for simplification, Lord Grabiner's task would be easier. People fail to comply with the tax and benefit systems for many reasons apart from inability to cope with complexity, but it is a factor. Lord Grabiner may be asked to consider coercive measures such as forcing dodgy claimants to sign on every day, but there is a need for citizen education too. This is going to become more of an issue if the government succeeds in merging tax and benefit systems (which seems to be its aim). If the personal tax system becomes more complex, we can expect more people to fail to cope. I'd like to see these reviews merged, or at least sharing evidence. The policy towards compliance is a crucial part of the framework in which all business operates, but it is small businesses which have the most to gain from a supportive environment which encourages compliance as much as enforcing it.
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