During Jeremy Corbyn’s election campaign, he frequently championed and backed small business owners and entrepreneurs. In fact, he released his small business manifesto – ‘Better Business’ – along with a dedicated website which, on the surface, has some favourable, yet heavy-duty policies.
Before the general election back in May, we conducted a survey with small business owners to find out what they wanted from it, and the results showed that the majority (over 27%) sided with Labour’s policies on business support and access to finance. This was due to promises made over the freezing of energy bills, easier investment opportunities, the ending of unfair contracts, and investments in science and innovation. Forward to 5 months later and the new Labour leader wants to stand up for small businesses and independent entrepreneurs – harking similar business-related promises to those of Ed Miliband. However, do Corbyn’s policies really reflect this sentiment? Or are they, as some have suggested, just a bit too left-wing radical?
The term ‘Corbynomics’ comes from Corbyn’s extreme left-wing policies regarding the UK’s economic state. One of its focal points is the resistance against austerity, specifically with the increase of taxes on the wealthy, and a massive cut down on tax avoidance by corporations.
We can argue that an opposition to austerity can surely be seen as a good thing. We can also argue that at the moment it seems to have proven its worth economically. The UK currently has the fastest growing economy in Europe, and we have just reached zero inflation in August this year. Yet, Corbyn wants to reduce the deficit. Not by decreasing public spending like the Tories, but rather through something called the ‘Peoples Quantitative Easing’ (‘People’s QE’) scheme. This means printing more money for new infrastructures within energy, transport, and digital. This would be done through the Bank of England.
What’s the intention?
Ultimately, to ‘upgrade’ the economy by investing in new and sustainable sectors. However, the process of QE, which was last used during the recession, wasn’t exactly a success: commercial banks reduced their lending, forcing the Bank of England to create an electronic cash flow by buying bonds via assets to inject into the economy: £375 billion, in fact. And what does history tell us whenever we simply try to print more money? Inflation. Inflation hits investments, weakens the pound, and makes prices shoot up.
How does Corbyn’s policy differ?
Corbyn wants to print more money for ‘the people’, rather than for ‘the banks’. A new national investment bank would then be established to fund these new infrastructures, and would issue the debts to be paid by the Bank of England, not the public. On the face of it, this seems like a grand plan for small businesses, and if it worked, it could be a huge help in landing them investment. However, the policy has been criticised, and labelled as ‘poor economics’ by some due to his fantasy (Tony Blair actually compared them to Alice in Wonderland) of paying off the deficit without decreasing public spending, and People’s QE plays a massive part of that.
How the re-nationalisation of railways and energy firms affects small businesses is a long-winded one, yet it could potentially be very important. Eamonn Butler, of the world-renowned think-tank Adam Smith Institute, made a fantastic point in regards to whether this potential upheaval would be really worth it. He asked, with the re-nationalisation of energy firms in mind: what if there were no compensation paid to the shareholders of these companies afterwards, and what type of message would that send to potential investors in UK business? This risk, no matter how small, is still a risk, and could lead to entrepreneurs looking abroad to invest in other businesses, as well as pushing budding entrepreneurs to look elsewhere as well to start up. This harks back to the 70s where there wasn’t really a free market system like there is today for small businesses.
A small business champion?
We know that Corbyn backs the small businesses of the UK – he’s said as much. Along with new investments in businesses and sustainable sectors, Corbyn also wants to invest in the skill levels of the population. The British Chambers of Commerce were quoted saying that ‘Britain’s businesses are the engines of job creation and economic growth. Firms will be encouraged by recent statements favouring much-needed investment in the UK’s inadequate infrastructure and skills.’
This indeed could be a great thing…
Giving people the skills they need to thrive professionally will only help to improve the economy. You only have to look as far as the recent survey conducted by The Chartered Institute of Procurement and Supply (CIPS)— where, out of 465 supply chain professionals, only 45% felt they were trained with the relevant skills for the job— to see how just how big some skill gaps are in certain sectors. Small businesses employ over 60% of the population – which means that skill improvements in individuals will have an especially keen effect.
The Tories promised in their summer budget that they would level corporation tax at 20% for all businesses, both large and small. This is with further deductions in mind by 2020. Corbyn, however, wants to increase this figure by an extra 2.5%. Why? Well, this is the line his ‘Better Business’ manifesto takes as a measure to get rid of austerity, via increased taxes. However, there has been much debate on this. Corbyn has not made it clear whether the increase will be consistent across small, medium, and large businesses.
So, what does this mean?
A low corporation tax can show how competitive Britain is in business, in relation to other economies. The UK attracts people all over the world to come and start-up which, in turn, helps to boost the economy. By increasing the tax, it might become too difficult for young startups to continue trading. So, might Corbyn be seen as secretly undermining small businesses with this increase? Is this why he wants to freeze business rates and ‘stand up’ for the budding entrepreneur? He knows this tax hike could be the end of some of them.
At the end of the day…
A pro-business government is what can most help British business succeed. Going back to policies that are reminiscent of the 1980s, such as re-nationalisation, are ways that can stop austerity. This is something many people feel is happening today under the Tories. However, there are arguments to support austerity, and small business is booming in the UK. There are over 5 million young enterprises that provide over 60% of the population with jobs. This figure is rising under the Tories. There are arguments for and against Corbyn’s policies, especially at this early stage. Unfortunately, at this stage, your guess at how things will roll out is as good as ours.
Read more about the results of our general election survey here.