Sunday, November 09, 2014
In many ways, business in Britain has never had it so good
Posted by David Smith at 09:00 AM
Category: David Smith's other articles


My regular column is available to subscribers on This is an excerpt.

Is Britain a good place to do business? It is, in the end, the most fundamental question for the economy. If not, then we are condemned to a future of low growth and stagnant living standards.

We need a successful private sector to provide the tax revenues to get the budget deficit down and provide public services. We also need private sector businesses to generate jobs, as they have been doing pretty effectively recently.

On Tuesday, as part of the events marking 50 years of the Sunday Times Business section, I will be chairing a debate on precisely this subject. Organised in conjunction with the London Business School, it promises to be a very good one, featuring Lord (Terry) Burns, chairman of Santander, Carolyn McCall, Jim Ratcliffe and Sir Martin Sorrell, chief executives of easyJet, Ineos and WPP respectively.

They will have their own views, which I am keen to hear. As it happens the 50th anniversary is an interesting moment for me; I have been economics editor of this newspaper for exactly half that time, 25 years. I don’t think we marked the 25th anniversary of the section back in 1989, so I had no idea that I was joining at a historic moment.

Let me give an economic perspective on the question. It will not surprise you to learn that it has been a story of ups and downs for business, given that we are just getting over the biggest “down”, the 2008-9 recession, in the post-war period.

In general, though, it has been a game, if not of two halves, then at least an improving picture. For the 25 years I have been at The Sunday Times, and for a few years before, the business environment has been generally good and, I would argue, improving. The contrast with the 1960s and in particular the 1970s, when free enterprise was in retreat a, profit almost a dirty word and the trade unions all-powerful, has been stark.

In those days business wanted low and stable inflation and, in the main, that is what it has got. Low-inflation re-emerged during the 1980s, was temporarily lost at the end of the decade, but has been the story, excepting one or two blips, during my time. At just over 1% now, inflation is, if anything, a little too low, and unimaginable in the dark days of the 1970s.

Business wanted industrial relations peace, and it has got it. Last year there were just 443,600 working days lost as a result of industrial disputes, fewer than 20% of them in the private sector. That compares with an average of nearly 9m working days lost annually between 1964 and 1989 and a post-war peak of 29.5m in 1979.

Business wanted to end the damaging wage-price spirals of the 1960s and 1970s and that has happened, partly as a result of low inflation itself, but also trade union reform and other measures to improve labour market flexibility.
Again, if anything, this has gone too far, with the current prolonged period of falling real wages. But the days when firms were held to ransom by pay demands are long gone.

Business’s ability to hire the workers it needs, meanwhile, is arguably greater than ever. Though there are some complaints about some aspects of the government’s immigration policies, and though the conclusions of last week’s UCL study on migration were accepted too uncritically – there are huge uncertainties about the costs and benefits in this area – firms have a larger pool of labour on which to draw than ever before.

Remember the days when Britain’s businesses were some of the most heavily taxed in the world? No longer. The main rate of corporation tax has come down from 52% just over 30 years ago to the current 21%. Next April the rate will drop to 20%, equalling the lowest in the G20.

The main rate of corporation tax will have been cut from 28% to 20% in an era of fiscal retrenchment in this parliament. Though corporation tax is far from the only tax paid by firms – many of which say business rates are a bigger burden – this is a powerful signal.

The climate has improved. Interest rates are at record lows and business investment is rising quite strongly. The share of profits in gross domestic product has risen. The environment for setting up, expanding and financing a business took a big knock during the crisis but is on the mend.

Is it all good? Of course not. The long-term problems that have dogged the British economy: skills, inadequate infrastructure and under-investment, remain. In the case of infrastructure there is a serious risk that a lack of investment in new energy capacity will leave industry, and the economy more generally, facing uncertain supply and high prices, at a time when America, through its shale gas revolution, is doing much better.

There is political risk, most notably in the anti-business rhetoric of the Labour party under Ed Miliband. Oppositions tend not to be as scary if and when they get into government but as things stand, businesses regard the prospect of a change of government with trepidation they did not feel when Tony Blair was Labour leader.

Even then, it is not all one way. Many in business also fear divorce from the EU, and worry that David Cameron is being pushed to a point of no return on the EU. I think the fear - hope for some - of EU exit is greatly exaggerated, but that does not prevent it being an issue.

There is also a tendency to load business with more red tape and cost, not all of it from the EU. Last week’s employment appeal tribunal ruling on holiday pay was another straw in the wind on this, possibly a significant one. The default position of bureaucrats, and often the courts, is to increase bureaucracy.

There was never a golden age in which Britain was a red tape free zone for business, though we probably came closest to it in the mid-1990s. Since then, despite pledges from politicians to ease the burden, it has increased.

We should never take business for granted. In most respects, as I say, Britain has become a better place for doing business. In several respects, businesses have never had it so good. But these things can change, and they can do so quickly, particularly if anti-business sentiment is allowed to gain traction.