Overtaxed and under-appreciated

2006

British business are over-taxed and over-regulated, costing the country jobs, profit, investment and national prosperity.

That's the blunt message from the new Director-General of the Confederation of British Industry (CBI), Richard Lambert, in his first major speech at the helm of the country's largest business organisation.

Speaking at a conference in London, Lambert said that politicians and the public must realise that business is "the beating heart of a successful society if the UK is to meet the challenges of globalisation."

But too few politicians and policy-makers recognise this fundamental role, he warned. Instead companies are over-taxed and over-regulated at the expense of profit, investment, jobs and national prosperity.

And unless the challenges are addressed, Britain will become an inward-looking, protectionist state bedevilled by high unemployment and high taxes.

In his speech to politicians, business people, policy-makers and journalists, Mr Lambert claimed that companies are now more accountable, transparent, socially responsible and engaged in local communities than ever before.

But the imperative to react to globalisation by restructuring, introducing new work practices, and off-shoring jobs have damaged ties between business and society.

Exacerbating this decline in trust, he acknowledged that while senior executive pay has increased in line with international benchmarks, lower skilled employees have found themselves competing with low-cost workers overseas

Lambert, a former editor of the Financial Times, also said that the media has a part to play. Business journalism has become focused on stock market announcements and caricatures of "fat cat bosses", he complained.

The upshot is that business becomes an ever-more attractive source of tax revenue for governments because companies do not have a vote and the public doesn't care about increases in corporate taxation - especially if companies are unpopular.

But, Mr Lambert said, "business is the source of wealth on which almost everything else depends. In a world where capital can flow from high tax to low tax economies, the burden of heavy corporate tax is not just born by shareholders - a large proportion of whom represent pensioners anyway - but also by customers, suppliers and, particularly, by employees. High business taxes cost jobs and hold down wages."

And as business taxes have increased the UK has also slipped down the league of international competitiveness, he pointed out.

At the same time, concern over business behaviour often prompts attempts to regulate it which can have a negative and unintended impact. On climate change, for example, Mr Lambert said: "The challenge is to strike the right balance between meeting our treaty and moral obligations to future generations on the one hand while protecting jobs and investment on the other.

"If business is seen as the villain of the piece there is a serious risk that this balance will not be struck. Too much of the burden for reducing pollution will be thrown on the corporate sector, and we will all pay the price as jobs and investment shift to more business-friendly climes, with little benefit to the environment."

On the vexed question of public services, Lambert argued that if the public, distrustful of business, cannot accept the idea of a profit-making company running a public service, he said, then the scope for public-private partnerships is limited, with two alternatives open to the country.

"One would be to reconcile ourselves to the idea that our rising expectations of these services cannot be fulfilled. The other would be to decide that the state had to provide everything, and to be prepared to pay taxes accordingly."

Looking ahead, Lambert said that the world is on the brink of a "Third Industrial Revolution" driven by the easy flow of information, over great distances and at low cost, which will vastly expand the scope of services that can be traded and delivered to people.

But the UK must adapt to take advantage of the moment: "The challenge will be to create the skills needed to fill the new jobs that will emerge in this coming period of transition to replace those that have gone offshore, he said.

This will require "a step change in the quality and quantity of training" available to the workforce with both business and government playing their part. "What won't work are protectionist barriers. Government could do a great deal of harm to the economy as a whole by trying."

It is therefore vital, he argued, that business now persuades the public that its success is integral to the well-being of the country and that it is part of society, and should not be disregarded as a vested interest.

The future of the UK depends on how these factors come together, Mr Lambert concluded.

"Looking forward ten years, I can imagine two very different societies here in the UK. In one, distrust of business will have climbed further - and with it, the burden of regulation and constraints.

"Unemployment will have risen as capital investment shifts to friendlier places, and taxes will represent a significantly bigger share of the overall economy. Politics will be inward looking, and ugly.

"The alternative is a society which will be successfully managing the transition to big changes in the workplace. We will have a better trained, more productive workforce. Regulation and the tax system will be simpler than they are today, and continued growth will have increased tax revenues while reducing the size of government as a share of the state.

"Competition policy will be tough, but business will be trusted to manage its own affairs within a fair and proportionate regulatory framework. The UK will be an outward looking society, the champion of free trade and open markets. This second vision is achievable. And it's something we all have an interest in striving for."