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Justin King: Tinkering, when we needed a true reset

Friday 5 March 2021

Rishi Sunak’s Budget, far from being a visionary response to the economic challenge ahead, failed to address the changed landscape that businesses will face when we emerge from lockdown

All Budgets are a balance between the short and long term, and all involve a trade-off between politics and economics. Given the backdrop of the continuing Covid crisis, this need to strike the right balance has never been more apparent. As we start to look at the “small print”, so to speak, it will become ever clearer that the opportunity has been missed. 

The first point to note is that the chancellor, Rishi Sunak, has made clear that it is his view that we are mid-crisis. Of course, we have the vaccine-led roadmap nurturing hopes of a relatively speedy exit – but the short-term measures he has enhanced or prolonged tell a different story and suggest a much more cautious approach by the chancellor. 

Furlough has been extended to September; the universal credit supplement likewise. Business rates support (albeit at a reduced level) is in place for the whole of the coming year. All this is underscored by an economic forecast of 4 per cent growth in GDP, after an 11 per cent decline in 2020 – making clear that, as measured against 2019, this year will still be a long way from any “return to normal”.

This “mid crisis” mindset may explain why so many of the measures remain short-term in their impact. “Needs must”, as my grandmother would have said. But I worry that now is really the time to look to the future. I am no less concerned that money spent on these short term measures will be money we won’t have available to invest more imaginatively for the future.

Furlough has been widely hailed as a success. But how many of the jobs it has apparently protected will be truly viable and sustainable in the “new normal” world? Large parts of the hospitality and retail sector are also being kept on life support through business rate assistance. But if trade doesn’t return when the bills do, they will not be viable.

Take the average commercial centre in our big towns. Cafes, restaurants, coffee bars, pubs – all dependent on a 9-to-5 work pattern, five days a week, involving a commute to a physical office. 

Clearly that pattern will not return, at least not in full. What are the implications of the new blended way of working, with perhaps only two or three days (flexibly) in the office? It seems inevitable that this change will be existential for many businesses. 

Yet furlough and business rates support make it inevitable that there will be a distorting incentive to return, as far as possible, to pre-pandemic capacity – with dire implications for productivity, profitability and viability in the medium term. Would it not be better to have a swift reset now? With the best-capitalised businesses, with the strongest customer propositions, returning to a much-changed marketplace ready to compete, grow and build for this different future?

I believe the answer is very clearly “yes”, and that measures in three key areas – property, people and profits – could form the basis for that approach.


It seems the argument on business rates needing structural change has largely been won. It has, after all, been the go-to tax to try and “save” the high street from the Covid crisis. But a full review is still only on the horizon.

The objective should be to level the competitive playing field between “bricks” and “clicks”. Online businesses use the services retail business rates pay for, but don’t contribute to them. Tax is part of their competitive advantage. 

The simplest solution would be to reduce business rates and increase VAT, net-nil to the Treasury, and net-nil to the consumer, but a levelling of the playing field at a stroke.

Of course, the Conservatives are committed by their manifesto to not raising VAT during this parliament. So – to allow for political reality – an alternate solution may be necessary. A delivery tax is not without its complications, but is to my mind the next-best option; simple to implement, and to remit locally. And a much-needed reminder to us all that, in truth, there is no such thing as free delivery.


Rightly, the chancellor maintained the minimum wage increase. However, nothing has yet been done to address the most unfortunate and predictable side effect of our fast-growing minimum wage. 

It is creating an ever greater financial incentive for what one might call faux self-employment. It is no coincidence that since the policy change to accelerate the minimum wage was made, this type of self employment has burgeoned. 

The financial incentive to do so gets larger by the day – national insurance, pension payments, the apprentice levy, and all the other costs of PAYE employment avoided. This is all part of the competitive advantage of the so-called “gig economy”.

But as the Supreme Court ruling on Uber drivers on 19 February made clear, much of what is presented as self-employment is no such thing, and no more than a means of exploiting the system. It is not hard to see how the Treasury could close down this scam rather than waiting for the courts to provide further elucidation. In the past, the voice of so-called “White Van Man” has proved politically compelling; but such special interest groups should have, at most, a voice rather than a veto.


Unlike many, I am relaxed about the future increase in corporation tax, not least because I have seen no evidence that the significant reductions in recent years led to increased investment, domestic or inward. With a rate of 25 per cent, as suggested, we would still be competitive in international terms. 

The real issue here is that, even at 19 per cent, many businesses – particularly, but not exclusively digital ones – have structured their businesses so as to declare no profit and therefore pay no tax in the UK.

I have long argued that consumers should vote with their wallet here, as they successfully did with Starbucks some years ago. But government must play its part too, especially with the tech behemoths against which consumers feel largely powerless. The worldwide debate – because this is truly an international issue – on measures such as a sales tax must be accelerated, and the UK should play a leading part in bringing it to a conclusion.

For me, such changes are inevitable if one takes a ten-year view. So why wait? By acting now we can create a new, fairer basis upon which businesses new and old can compete. We can also establish a fairer compact with society, with business contributing not just through the jobs and the wealth we create, but in the contribution we make to the Exchequer and to alleviating many new burdens that society, particularly the young, now face as we look to a post-Covid world.

Justin King is Vice Chairman of the private equity firm, Terra Firma, and a Non-Executive Director of Marks & Spencer plc