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If Miliband’s Labour party is pro-business, what does anti-business look like?

    Despite his protestations on the Andrew Marr show yesterday, Ed Balls’ call for the reintroduction of the 50% income tax rate is just the latest in a line of self-defeating and anti-business proposals. His rather glib line that “this is not an anti-business agenda… this is an anti-business as usual agenda” rings hollow given the series of announcements we have heard from the Labour leadership over the last few months.

    One of the key parts of this agenda is Labour’s support for increasing the main corporation tax rate to 21% at the beginning of the next Parliament. This policy is at odds with vast quantities of academic literature which show rising corporation taxes lead to decreasing investment and wages and increasing prices. It is also at odds with Labour’s own business policy review which includes the very sensible proposal to simplify complicated tax reliefs and use the savings for “reductions in corporation tax”. The Treasury’s own estimation is that the Coalition’s corporation tax cuts have been largely self-financing and will increase GDP by between 0.6% and 0.8% in the long term.

    However, the anti-business policies go far beyond the realm of tax. Ed Miliband’s more recent pronouncements on services sector competition are to be encouraged. However, his solution for injecting this greater competition is usually a mixture of calls for higher taxes and more regulation; the very antithesis of the pro-market, pro-business, pro-growth policies we need. What he seems not to understand is that regulation too often inhibits entry to and exit from markets; stopping dynamic new entrants from shaking up the status quo and keeping failed institutions from being wound down. This is of course in addition to the extra costs that it adds to those companies already functioning competitively.

    Miliband’s nonsensical calls for an energy price freeze fly in the face of logic and would generate significant uncertainty; reducing investment, inhibiting supply growth and quite likely actually raising prices. Moreover, this tragedy turns to farce with his simultaneous support for green taxes which of course raise energy prices for both households and businesses.

    On transport, Labour’s flirtation with the nationalisation of trains does nothing to actually address the problem of a lack of competition (see Tony Lodge’s report for a roadmap to achieving greater rail competition). On banking, Labour’s call for setting up new retail banks hewn from the carcases of existing banks seems five years out of date and its support for a financial transactions tax would curb growth and hit London disproportionately. This is to say nothing about the party’s contradictory support for bonus taxes and bonus caps. On housing, its castigation of builders does nothing to encourage long term investment and its promises to suddenly increase housing construction seem utterly removed from the reality of the continued supply side planning reforms we need.

    Even on apprenticeships, one of the few areas which had previously enjoyed political consensus, Labour’s policy to force firms to take on EU apprentices for every skilled non-EU worker they hire risks damaging business support for apprenticeships. It will also more than likely lead to a reduction in the quality of apprenticeships which are provided.

    Labour won three elections when it largely accepted the need for a free market economy. By embracing higher taxes, more regulation and the extension of blunt state control, Miliband’s Labour party is now promoting an anti-business and anti-growth agenda. 

    Adam joined the Centre for Policy Studies as Head of Economic Research in January 2014. 

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