I have a confession to make: I am a terrible gardener. More specifically, I have an appalling track record of keeping houseplants alive. I forget to water them for weeks and then panic and try to compensate for the lack of attention.
As any horticulturalist knows, this approach is a recipe for disaster. You cannot tip a bucket of water over a withering plant and expect to see any growth. The only way to produce something healthy is through daily care and gradual improvement.
I wonder if Rachel Reeves keeps house plants. The chancellor’s first budget felt like the economic equivalent of drenching a parched aloe vera and hoping it results in growth. The sweeping tax hit on business will fund vast investment in public services and infrastructure, but at what cost to the private sector? And what confidence do we have that the spending plans will succeed and stimulate the economy?
The Office for Budget Responsibility certainly doesn’t have much faith. It concluded that the measures in the budget are unlikely to increase economic growth over the next five years. This view seems reflected by the owners of small and medium sized businesses I listen to — a month after the chancellor made her announcement, the feeling among owners and entrepreneurs remains pretty bleak.
So where from here? How does business regain confidence? I think most company owners and chief executives believe in the need to rebalance investment, and many are supportive of tax rises to invest in public services. But without a vision and some clear signals that business-friendly conditions lie ahead, the prospects for growth in the economy are about the same as for my poor houseplants.
The role of any business leader is to articulate a vision, instil confidence among colleagues, and then set out a plan for getting to where you want to be. There needs to be some excitement, some cause for optimism. You can’t cut, apologise or tax your way to success.
Of course, when times are tight and growth seems uncertain then the role is a tricky balance of instilling confidence in the direction while being demanding about controlling spending. You cannot announce a cost-controlling programme and expect people to be excited about it. But you can sail stormy seas if there is a destination and you are able to paint a convincing picture of why it’s worth sailing there.
Unfortunately, stormy seas are difficult to navigate with policies such as the hike to employers’ national insurance. The impact of this increase is to in effect tax people and encourage investment in assets. Full expensing on capital allowances mean you can buy a laptop, or piece of machinery, or a robot, and offset it all against tax. If you employ people to do that job then the future national insurance increase coupled with new workers’ rights legislation suddenly makes it a lot more expensive. Either intentionally or otherwise, these policies encourage investment in automation, technology and offshoring. If it is people versus machines, it is a clear win for the machines when it comes to tax.
To level the playing field for “Team Humans”, businesses can start to think more creatively about how they reward employees: perhaps more use of tax-efficient salary sacrifice to provide pensions, electric vehicles, cycle-to-work and share incentives.
The challenge then is one of both growth and efficiency. And when you are spending money, especially if you are spending £40 billion, expect to have all eyes on not just what that money is being used for, but how that money is being spent. This, perhaps, is the other worry for the businesses being taxed today — an uncertainty around whether the money being raised is going to be invested well. I know more than most that suddenly tipping water on to dry soil does not result in it being absorbed.
One solution is to invest carefully and in stages rather than spend too fast. Start-ups and growing companies are very used to raising money from outside investors in “rounds” — which are known as seed, series A, series B, etc. Each one with larger bets in succession after milestones are met and the investment thesis proven out.
Sir Keir Starmer seems to like milestones too, having used the word repeatedly in setting out his six targets for the country. These goals set out target outcomes from the expenditure plan — from building homes to reducing NHS waiting times. I doubt there can be many people who aren’t behind these outcomes. There is clearly a plan to spend; now to demonstrate that it will be done efficiently.
So Starmer has set out the strategy for the cost side of the profit and loss account, but what is the plan for the top line? How will the investments deliver growth or raise our dire productivity? Absent an articulation of this, it is hard to see how business confidence can be restored.
If you squint hard and look for silver linings, one potential positive is that during difficult times, tough decisions come into clear focus. Things you might have been putting off because they are uncomfortable suddenly become urgent, and that is generally a very good thing for efficiency.
That is a crumb of comfort, but brings me back to my horticulture problems. What I really need is a good gardener, someone I feel confident will nurture my previously neglected plants. Please think twice before tipping a bucket of water over my aloe vera.
Caroline Plumb is a serial entrepreneur and chief executive of Gravita, a tax, accountancy and advisory firm