CBI exposes Tories’ chaotic business plans

By James Valentine

The CBI today criticised Sir James Dyson’s report on boosting business innovation “for being too narrowly focused.” The Tories recently commissioned Dyson to produce a report about business and industrial innovation, and one of its proposals is selectively to increase investment tax credits. The CBI’s head of enterprise and innovation, quoted in the Telegraph, says:

“R&D tax credits should not be restricted to SMEs and hi-tech firms, but should be available to companies of all sizes and sectors. This would encourage all businesses to grow through investment and innovation.”

I agree with the CBI, but I wouldn’t blame Dyson. The person responsible for their anti-industrial tax proposals is surely George Osborne.

A key element in the Tories’ policy to “get Britain moving again” is to cut the basic rate of corporation tax from 28% to 25%. How will Osborne find the money to do this? Apparently, by “simplifying” it; in particular, removing investment tax credits. This policy was confirmed recently by Osborne on the Andrew Marr show. This “simplification” was presented as an easy win, a sort of no-cost boost for business.

His timing wasn’t good, because Dyson, whose report is out this week, doesn’t agree with him. He believes that R&D (Research and Development) tax credits, specifically refocused on hi-tech companies, small businesses and new start-ups, are key to getting British manufacturing industry moving again. Although he agrees with the long-term aim of cutting corporation tax, it isn’t his priority.

It’s surprising that Osborne hadn’t consulted his own adviser before arguing for the cut. He seems to have forgotten the argument, now accepted by all parties, that we need to concentrate more on manufacturing industry’s needs. The Guardian has reported a warning from General Electric that Tory plans to cut corporation tax by reducing investment incentives would be an “own goal” and could actually increase the tax paid by some manufacturers.

Now the CBI has weighed in to say that all R&D tax credits should stay, and it’s doubtful if there would be any “easy” money for Osborne’s proposed cut. So he has a choice: whether to drop the policy, or if he were to become Chancellor, to risk a rift with the CBI from day one.

This Osborne policy looks like turning into another so-called “killer app” that’s already dead in the water. An opportunity, I think, for Marr and his colleagues to dig deeper next time.