A new word was coined earlier this month.
Joining the terms “Brexit” and “omnishambles” in the English lexicon, we now have “Corbygeddon” to describe the abject fear of a hard-left Labour government led by Jeremy Corbyn, that’s set to drive the uber-wealthy (or at least a proportion of their assets) out of the country in droves, according to the Sunday Times Rich List.
With the Tories weakened and the prospect of an early General Election hovering in the wings, rising taxation on wealth seems a real possibility.
Add to that the news that Labour would extend its £10 minimum wage plans to under-18s, and there’s a distinct chill in the enterprise climate. No wonder entrepreneurs are worried.
Concerns over such a dual-pronged assault on personal assets and business profitability are understandable – but there’s something even more important at stake here. From a wider perspective, the biggest risk is that investment in SMEs – which make up 99.9 per cent of UK businesses – will suffer.
And given that these small and medium sized enterprises are major employers and generators of tax receipts which pay for our public services, that’s something that anyone, regardless of political persuasion, should be very worried about.
Of course, should the super-rich all leave and take a reported £1 trillion out of the country, that could be very damaging economically too. But let’s not forget that SMEs turned over £2 trillion last year alone.
If business owners and investors see no incentive (or have less headroom) for committing capital to growing their companies, SMEs will stagnate, and so will the economy.
Leaving aside for a moment how the cost of Labour’s proposed minimum wage will weigh on small companies far more than larger corporates, it’s imperative that we maintain a pragmatic approach to individual financial rewards in our tax system.
We need a regime that continues to promote business growth and offers people an attractive pay-off for the risks that entrepreneurs and investors are taking, not one that penalises success and stigmatises entrepreneurship.
An emerging trend towards “derisking” by SME owners anxious about future policy changes is already becoming evident.
In the past year, we’ve seen the number of SME private equity deals where entrepreneurs are seeking external capital in order to take cash out of the business rather than to fund growth or a change of ownership (traditionally the top reasons) increase by almost a third.
It’s entirely logical that they would want to crystallise some of the value they’ve built up while tax rules and the economic climate remain relatively favourable. Yet it does suggest that, for some entrepreneurs, future-proofing their existing assets is taking precedence over ambition to progress.
If businesses end up standing still rather than moving forward because of a lack of investment, job creation could be hit hard, as will corporation tax, income tax, and national insurance coffers.
Looked at dispassionately, ramping up taxes on wealth derived from business success risks being counter-productive.
In Corbyn’s war against the perceived unfairness of capital inequality, SMEs, workers, public services and the economy as a whole could end up being collateral damage.