Creating E-business Speed Bumps

The 2001 Budget deserves a B-minus for its service to UK e-business, says Ian Lynch

The 2001 Budget deserves a B-minus for its service to UK e-business, says Ian Lynch

Did the UK Government's recent budget measures move Britain up the league table of countries where it is easy to conduct e-business? A generous mark would probably be B-minus, depending on whether or not you think Gordon will have to hand back some of that 3G Licence (for third-generation mobile phones) revenue to the telecommunications companies.

Think of a regulation, tax break or other government wheeze as a small speed-bump, a sleeping policeman on the Information Superhighway (remember when we called it that?): a minor inconvenience, but nothing to get too concerned about. And with each new credit, allowance and initiative comes more tarmac. Pretty soon you have a big lump, smack in the middle of the road, representing a huge barrier, and that is unfortunately where we seem to be heading with this government, if the last few budgets are anything to go by.

Some of these speed bumps may actually be welcomed by business, such as the extension of R&D capital allowances. Certainly, IT vendors could be expected to see the after-tax cost to their customers reduced if the latest technology fad were suddenly tax-free. But this policy confuses inputs and outputs. What UK PLC needs is not more spending on R&D, but the intelligence to produce more profitable results from R&D; in other words, the way to reward effective, forward-looking companies is to reward outcomes, not subsidise the inputs. That means lowering taxes on corporate profits, pure and simple. Otherwise, industry can become lobotomised to the point that it reacts not to changing market conditions or real opportunities, but just to the latest 'Simon Says' from the Government.

If the New Economy, e-business, the information age or any of the other buzzwords have any meaning, they must involve removing friction from the system that links producer to consumer. The question of the government then becomes, "does this measure make it easier or harder to do business?". It is a shame that, having delivered a stable and reasonably benign macro-economic environment (albeit having outsourced interest rate decisions to the Bank of England) Gordon Brown has to demonstrate how clever he is by cluttering up the tax code with so many annoyances and complications. Of course, he is not the only or the worst offender in this regard. In the early 1990s, Norman Lamont imposed an extra tax on mobile phones because he didn't like them going off in restaurants. The fact is that governments of all stripes find it hard not to scratch at the regulatory itch, but the rest of us endure the pain. Let's not even get into IR35, which is perhaps the best example of how one arm of government can screw up what the other arm claims to be promoting.

For example, most e-businesses employ relatively few people, so they fit snugly into the category of small businesses; but this is exactly the kind of company that complains about additional red tape, whether initiated from Whitehall or Brussels. So every 'working family with children'-type benefit, or banana-straightening EU directive that is piled on adds to the complexity of doing business. Those speed-bumps really do add up in the end.

Take the question of Intellectual Capital, and whether it is the role of governments to nudge the accounting standards bodies to adopt particular policies on goodwill, branding and other intangible assets. If your beans are intangible, then that represents a clear challenge to the bean-counters. There are some difficult issues for markets to address when trying to judge the value of Intellectual Capital. This explains the wild fluctuations in dotcom capitalisations - how can you value a company based on an idea rather than assets? That doesn't mean that governments should wade in, as suggested in the recent budget.

So is there nothing that business should look to government to provide or promote? Apart from keeping out of the way most of the time, it still has some very important tasks to fulfil:

  • deliver an educated workforce
  • only collect statistics that contribute to decision-making, not econometric trainspotting
  • keep levels of regulation and taxation low
  • attempt to provide as stable an economic environment as possible.

Easier said than done!

Ian Lynch is director of strategic advisory services for the Butler Group

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