Better public services and lower taxes go together

Boosting growth through encouraging enterprise produces higher tax receipts, enabling more vital spending on education

Taxation in the UK as a percentage of gross domestic product (GDP) is now set to grow to levels not seen since the Second World War. It is projected to rise to 37.5 per cent next year from around 33 per cent in recent years. The era of big taxes and big government is back with public spending rising to its highest level since the 1970s.

It would seem that policymakers have concluded that potentially lower growth is a price worth paying in the expectation of increased tax revenues. It remains to be seen whether this expectation is well-founded. It is uncertain how entrepreneurs will adapt to the higher tax regime.

The Autumn Statement contained little on how we as a country are going to stimulate investment and thus long-term productivity. It did not address the big spending issues – reforming the NHS or scrapping the pension triple lock – which could reduce the fiscal black hole now and tax levels in the future. Without tackling these tough issues, further tax hikes are inevitable and there will be less to spend on what matters for the UK’s long-term competitiveness: our education system.

The question of how we can move away from “more government is always good” and create a bigger private sector and, in the process, a more vibrant and successful economy, which generates higher tax receipts to fund our public services, was not addressed.

Some will argue that it is more important to focus on the short-term priority of balancing the books. Post the mini-Budget fiasco, even fewer are now willing to make the case for lower overall taxation.

The Government appears to have given up on the idea of a smaller state. Attitudes to business are increasingly negative and more state intervention and regulation are unquestioningly seen as good. There are now, post the global financial crisis and the pandemic, ever increasing demands for state intervention. Price controls and government intervention is championed by many as a nirvana.

We need to think about how we can fund good public services on a sustainable basis. If we push the level of overall taxation ever higher, we are in danger of reducing what we collect. Only by increasing the size of the tax-paying base can we collect more.

The Chancellor should do more to encourage smaller businesses. This sector employs the largest number of people and these are the businesses that create new jobs. Smaller companies are the prospective larger FTSE250 companies of tomorrow. Government does have a role to play here; they need to create an investorfriendly environment to encourage ever more start-ups in the UK.

A record £1.1billion-plus was raised

Ultimately smaller companies and those that grow to become FTSE250 constituents will be the key drivers of growth

in the 2021/22 tax year by venture capital trusts, but prohibitive investment criteria make deploying this pool of capital into smaller and medium-sized companies difficult. If we can enhance the incentives to invest in them, there will be more employment opportunities. Ultimately smaller companies and those that grow to become FTSE250 constituents will be the key drivers of growth.

Pro-business policies could turn the tide on the state taking an everincreasing share of our economic output. Only with a larger economy will the UK be able to invest sufficiently in its public services; a vibrant private sector is the solution.