Ed Miliband tried, he really tried to woo business. But business by and large hasn’t listened. The Labour remains the party of working families, the cost of living crisis and – it would hope – SMEs. Big business has widely backed the Tories.
In two letters to the Telegraph, scores of corporate leaders have said that the Conservative-led Coalition has been good for the British firms. To a large extent that appears to be reflected in the country’s economic data. The UK had the fastest growth in the G7 last year and there are millions more jobs than there were in the depths of the recession.
But is it fair to attribute that to the Government of the day? The recovery – and the recession – were after all global phenomena, affecting certainly all developed economies. Government’s role was perhaps like a sailor at the helm of a ship – it can’t stop the storm, but it can handle it either well or badly.
The case that the Conservative-led government did handle it well is based above all else on austerity. No one does belt-tightening like the Tories. The government has been feverishly trying to cut the deficit since 2010, when the Greek crisis raised the prospect that western economies could actually go bust. It was all about confidence. If businesses lost faith in the system, the system could collapse.
Deficits naturally increase during recessions as tax revenues dry up and spending obligations expand, so this was neither an easy nor a painless task. Economists at the time were divided on whether it was a good idea. Fiscal tightening after all tends to cause the economies to shrink, not grow.
Now, it seems, the so-called ‘austerians’ have lost the argument. ‘It is rare, in the history of economic thought, for debates to get resolved this decisively,’ wrote anti-austerity cheerleader (and Nobel Prize winner) Paul Krugman in a long letter to the Guardian. ‘The austerian ideology that dominated elite discourse five years ago has collapsed, to the point where hardly anyone still believes it.’
The new consensus appears to be that austerity just wasn’t necessary on the scale seen in Britain or the USA to avoid a Greek-style disaster. Many, such as Krugman, think governments should have embraced deficit spending instead. But Krugman, for all his intellect, tends to presume people will play the game by the rules and governments are capable of resisting the temptation to backslide.
Still, he's right that austerity did have its consequences. Economists’ community and blogging site Economonitor compared the average growth of 30 top developed economies between 2010 and 2014 to their average ‘fiscal consolidation’.
By and large, the countries that were light on austerity grew fastest. ‘Tightening the budget by one percent of GDP cuts about half a percentage point off the growth rate,’ observed Economonitor.
None of this helps the Conservatives’ claim that the economy (and therefore businesses) did better under their stricter regime than they would have done under big spending Labour. Of course, it is impossible to know whether we would have been better off under a different government. Besides, if confidence really was at a tipping point in 2010, then austerity would still have been necessary regardless of the costs or the actual risk of sovereign default.
The Tories may not be able to rely entirely on their austerity credentials to build their business case then. There are other pro-business policies that are harder to argue with, however. Britain’s corporation tax rate has fallen from 28% to 20% under the coalition. In other words, businesses are paying only 71% of the tax they were on the same profits.
Significantly, it’s a much bigger cut than in other major economies, making Britain a relatively more competitive place for foreign firms to relocate and invest. HSBC’s talk of leaving these shores because of the bank levy goes against the wider trend.
Businesses have clearly benefitted from lower tax bills, but they’ve also enjoyed a lot of support from the Department of Business, Innovation and Skills (BIS). The British Business Bank and the Start-up Loans scheme have been widely praised for helping small firms, as has the minister responsible, Vince Cable.
Unfortunately for the Tories, Cable is a Lib Dem. Of course, voters don’t seem to recognise that, consistently placing more trust in the Conservatives to hold the purse strings than the other parties. Whether that’s actually justified remains open to debate.