Brown proposes £12bn credit crunch business fund

Gordon Brown will propose a £12bn fund to help small businesses survive the credit crunch at a meeting of fellow European leaders today on how to tackle the problems currently crippling the financial markets. Speaking at Downing Street before his departure for Paris, Brown said: “We are seeing, in addition to the national action we are taking, that these global problems about oil, about the credit crunch, need global solutions. “I will be proposing a £12bn small business fund, so that small businesses in our country and the rest of Europe can get money immediately so that they can continue to employ staff and continue to provide services.”

This is strange, considering the fuss that was made over the £2.7 billion cost of undoing the muddle over the abolition of the 10p tax rate. It is a very bad proposal.

One effect, probably the main one, will be to sustain commercial rents that are at excessive levels, having regard to the present economic circumstances. It is mostly pushing taxpayers’ money at greedy landlords. Land value taxation would have the same benefit for small businesses as it would encourage landlords to drop their rents in order to retain their tenants during difficult times. In the absence of LVT, rents and land prices are “sticky downwards” – with falling demand, they do not fall to market-clearing levels.

But even without LVT the government could do better with £12 billion; the best option would be to use this amount to raise tax or National Insurance thresholds, thereby reducing the cost of labour. What is the matter with them that they are unable to come up with such a simple and obvious measure?