The perfect place to start on tax-cutting

Oct 23 2008 by Peter Jackson for The Journal

NORTH East businesses need new rates on empty properties like they need the proverbial hole in the head.

The Journal reported this week that businesses in the region are having to cut investment or jobs in order to pay a new tax on empty properties. In some cases, they could even go bust.

The North East Chamber of Commerce is reporting companies facing bills of up to £500,000 and others cutting back on investment schemes because of the new tax. This could have disastrous consequences in the current economic climate.

It was introduced to discourage property owners in London leaving properties empty while capital values increased. This is a classic case of the law of unintended consequences, a law which plagues all governments, particularly governments which see legislation as a positive good in itself and always the solution of first resort.

It probably never intended, for example, that the smoking ban should accelerate the decline of the British pub, but this has been one result.

The law of unintended consequences is what happens when a simple system attempts to regulate a complex system. The political system – for all the warped individuals who operate in it – is a simple system. Society, on the other hand, is a highly complex system.

I fear we are about to witness this law operating on a much grander scale as the Government opts for the Keynsian high public spending route out of recession. The unintentional – but sadly foreseeable – consequences of this are that money and talent will be redirected from the productive sectors of the economy to the unproductive. Furthermore, by the time any benefits feed through into stimulated demand, we will be well and truly in the economic doldrums.

Cutting taxes, on the other hand, tends to have an immediate and solely beneficial effect on the economy, directly relieving the burden on hard-pressed businesses and consumers and immediately stimulating demand. It also, paradoxically, increases government revenues.

Here, with the empty property tax, the Government has a perfect place to start on a tax-cutting programme. It will relieve companies that sorely need relief, stimulate development and cost the Government, by its own admission, a paltry £1.3bn, which, as Alistair Darling is spending money like a drunken sailor on shore leave, is truly small potatoes.

Peter Jackson is a freelance writer and former business editor of The Journal – p.jackson77@btinternet.com