Businesses should see paying their way as a badge of honour

My mobile has been pinging a lot lately with e mails from politicians wanting to consult ‘business’ on what they should be doing for us.

Across the spectrum, our elected representatives worry about being deemed ‘not fit to manage the economy’ and look to conjure policies that will earn them a pat on the back from people claiming to speak for business.

But why? Asking those who profit from government economic policies what those policies should be is a bit like asking a child how many sweets he or she wants for breakfast. No amount of goodies is ever enough.

It wouldn’t be so bad if the consultations gave as much weight to small businesses – typically engines of innovation – as they do major financial institutions and big corporations.

The assumption seems to be that the interests of all business people are the same, yet they often aren’t and sometimes clash – as in supply chains where small companies are treated as cash cows by big ones.

This dichotomy was sharply revealed in a recent meeting with a politician I attended when I was the only person present favouring tougher action to tackle the problem of late payment.

The latest research on this from BACs shows the total amount SMEs are, in effect, lending to big companies is £26.8 billion – enough, if paid, to render unnecessary all the government’s financial support for start-ups and growth businesses.

It’s a scandal, but the other business people at the meeting argued any action on this would lead to unwelcome ‘red tape’ – which, of course, it wouldn’t if suppliers were simply paid on time.

The view from big companies is usually: ‘tough – if you don’t like it, don’t supply us’. But what choice do most small companies have when the markets they supply are controlled by a handful buyers all with the same appalling payment practices?

And then there’s corporation tax. The gradual elimination of the special rate for small businesses by successive governments has happened without the outcry we saw in the general election over proposals to make high-earning executives’ pay a little more tax.

In 1990, the small profits rate was 25% compared to a 34% standard rate. By 2010, the gap was down to 21% to 28%, and this year the differential has gone completely with all companies paying 20%.

In other words, bigger businesses have enjoyed nearly three times as much tax benefit as small companies from the business-friendly politics of the post-Thatcher era. Yet, as we now know, many big corporations, far from being grateful, invested this windfall in tax avoidance schemes and some even moved their headquarters to other, even lower-tax countries.

Corporation tax now accounts for only 7% of government revenue. Once you eliminate the amounts paid by small businesses, big companies probably pay barely 3% or 4% of the cost of our public services.

This is the context in which complaints about a skills shortage and the need for more investment in infrastructure should be seen. The message of many business ‘leaders’ to government seems to be ‘cut what we pay, spend more on what we want’.

Within all this lies the assumption that what’s good for big business is good for the economy. But is it? Deregulation of banking was considered business-friendly ten years ago but it landed us in the worst recession ever.

So maybe it’s time for politicians to focus more on Britain’s 5.2 million SMEs and their 15 million employees. And maybe, if we do, there is a virtuous circle to be created of payment on time to fund growth, payment of taxes to fund better infrastructure and training, and the creation of higher quality and better paid jobs.

A few of us in business in Wales have been talking about this for a while, and we think now is the time for a new kind of business campaign.

We’re planning to call it ‘We Pay Our Way’ and base it on the premise that it’s good for everyone if businesses pay the taxes needed to fund services where they make their profits, pay their suppliers in 30 days or less, and pay their staff the Living Wage Foundation’s minimum or more.

This would be a badge of honour. It might also help create a more dynamic and inclusive economy.

 

Steve Howell

 

This article is based on Steve’s monthly business column for Walesonline and the Western Mail newspaper.

Steve Howell is also the author of Over The Line, a novel telling the story of an Olympic poster girl facing a doping crisis.

Follow him on Twitter @fromstevehowell

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