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Business reliefs and incentives – money for nothing?

Yesterday [07.10.14], the Guardian published an article by Aditya Chakrabortty, questioning why “billions of pounds of British public money has gone to business.”

From subsidies to tax reliefs, the article criticises the perceived secrecy surrounding “an £85bn subsidy that big business and the government would rather you didn’t know about,” according to new research by Kevin Farnsworth at the University of York. The piece goes on to argue that not only should these subsidies be on the agenda for government cuts, but talked about as part of a bigger public conversation. And with around 2,000 retweets, it’s clear there is appetite for debate on some of these issues.

In the spirit of that debate, let’s take a look at the core of the argument and explore some of these points from a slightly different angle. It’s argued that business takes £85bn in “hand-outs”, including subsidies, tax reliefs, insurance schemes, procurement and marketing. Looking specifically at the role of tax reliefs and incentives, we’re arguing that these form an important part of any government’s economic policy to encourage wealth creators to take risks and pursue cutting edge technologies.

Well-designed schemes encourage businesses to do certain things – like put their money into research or infrastructure, export more of their goods, or invest in certain types of technology. That means businesses can create more jobs and can pay better wages adding to our prosperity as a nation. In many cases because businesses get these reliefs, their directtax payments are inevitably lower. But often, the creation of jobs and growth of the business means more tax revenues are generated over time.

In a globalised world, if the UK government does not make this country an attractive place to invest, then ultimately businesses will go elsewhere, taking jobs, investment and tax revenues with them.

And in return business gives a lot back to our economy:

  • Firms employ over 25m people in the UK and that number is growing all the time
  • On average since 1997, private sector firms have been responsible for 78% of all UK economic activity
  • And firms pay back £172bn a year in taxes – 30% of all government tax revenues and more than enough to cover the annual budgets of the Department of Health and Department for Education put together
  • On top of the taxes it pays, business helps the tax system run smoothly by collecting VAT and income tax and national insurance from its employees. Businesses collected £283.7bn worth of taxes for the government last year.

Of course reliefs and subsidies should be transparent. Not just for the general public, but for businesses too – reliefs and subsidies can’t be effective at incentivising positive behaviours if firms don’t know about them or how and when to take them up.

Businesses should also be willing to be transparent on the reliefs that they take up. That’s why The CBI is encouraging companies to clearly explain, in simple terms, what they pay and why on their website and to follow the CBI’s statement of tax principles when managing their affairs.

In his article, Mr Chakrabortty also argues that businesses that receive subsidies or reliefs should “observe certain conditions of basic fairness” in return. Fairness and tax is a tricky one to define because it requires an entirely subjective interpretation. We need to use the law as the basis for what businesses do. The vast majority of businesses pay the tax that they owe, in accordance with tax law, and the small minority of businesses that do not play by the rules must be held to account.

Through The Great Business Debate we want to encourage conversation about the difference that business makes to all our lives and the issues that have undermined public confidence in business. So is business getting an £85bn hand-out? And is business delivering enough in return? Share your views @bizdebate

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