Politicians are suddenly obsessed with small firms. About time too! But they seem stuck for ideas on how to help. David Cameron wants to permit deferral of VAT for six months and cut National Insurance by one per cent for micro businesses. Wow! Not.

Gordon Brown wants to, er, increase corporation tax. And the Lib Dems want to cut taxes for the least well off to stimulate demand.

Are you impressed? Me neither.

The chaps at the Adam Smith Institute have some better ideas:

•    Reduce the uniform business rate: For small businesses this can be a major problem since it is based on the rateable value of commercial premises, rather than ability to pay (i.e. profit).

•    Eliminate employers' national insurance contributions: These 'contributions' are essentially just a tax on jobs – with unemployment on the rise it really makes sense for them to go.

•    Stop the rise in the small business corporation tax rates: Following the last budget, the tax on small business profits has risen from 19 to 20%, and is set to rise another 2 points in 2009.

•    Scrap the climate change levy: It doesn't do anything to combat climate change and it poses a significant burden on businesses – especially energy-intensive manufacturing ones that use a lot of electricity.

•    Reduce the burden of business regulation: First, stop new burdens being introduced. Second, scale back existing burdens. Third, simplify administration to reduce costs.

•    Get rid of stamp duty: This tax on share and property transactions makes little sense at the best of times, and less still when those markets are in trouble.

•    Encourage private investment: Get rid of taxes on capital gains, dividends, inheritance and savings.

•    Simplify and reduce corporation tax: Get rid of all the exemptions and complications – just have a single low rate on operating profit.

•    Raise the personal allowance: Take low-earners out of the income tax net, and put more money in everyone's pocket.

All good. But I think I can go one better. Pay off the national debt. All of it. OK, I know it will take a superhuman effort to pay off the £580bn we owe, but when we start to do so the rewards will be massive.

The interest on the national debt is £31bn a year rising to £35bn next year. Pay off the debt and as the interest payments fall we can do more than delay VAT payments. We can slash taxes left, right and centre.

Keynesians will say this is no time to be prudent. Spend! Spend Spend! I aver. This downturn  may last five years – unemployment will hit 3m by 2010 claims Capital Economics – and the last thing we need is to be shelling out tens of billions each year in interest payments.

Pay off the debt. Slash corporation tax, axe stamp duty and raise personal allowances as the interest payments fall.

Sounds better than Cameron’s plan, doesn’t it?

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By Charles Orton-Jones  on   Oct 27,2008

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Keywords

national debt    David Cameron    Gordon Brown    corporation tax    Lib Dems    Adam Smith   

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