Simon Sweetman thinks that we are talking ourselves into a recession...

Before the PBR everybody put in their wish lists to the Chancellor. In most cases these are a mixture of fairly sensible suggestions and special pleading on behalf of the groups they represent. Some of these can only be regarded in this context as ritualistic, since they run counter to government policy (sometimes to the policies of all possible governments) and are mainly included to make activists among the members feel good.

There are the cries for abolition of things we know will not be abolished (Class 4 NIC, IR35). There is a call for drastic change to the VAT threshold (but that may be down to £1 or up to £120,000, depending on mood).

Then there is the call for a reduction on the small companies’ rate of CT, a call which in the end was partly answered. This helps to confuse the situation, because it is constantly important to remind politicians, civil servants, tax experts and so on that the majority of businesses are not incorporated at all and the CT rate means nothing to them. And indeed that it means very little to small companies, most of whom pay very little corporation tax because they are not in a position to accumulate profits, especially when times are hard.

The Treasury puts the first year cost of the delay in implementing the 1% increase at £640 million. If there are about a million companies (which for all intents and purposes can be taken as the small company figure) that’s £640 each so average profits of £64,000. Now in my experience most small companies remunerating their directors by salary make no profits at all or very small profits : most of them struggled to find £10,000 of profit when the 0% band was available. Does this in fact mean that dividend payment strategies are very widespread?

And then the cut in VAT. Before the PBR almost everybody wanted a cut in VAT and there was talk of “VAT holidays”. There have been two VAT rate changes before – when Geoffrey Howe doubled it from 7.5% to 15% and when Nigel Lawson raised it to 17.5%. I do not recall a fuss being made about the problems for business in implementing the change. Why is it so much more difficult now? Some businesses, we are told, have software packages which hard wired in the 17.5% rate. Why?

The VAT change is admittedly small beer and apparently will be much more burdensome than was thought. The fact that flat scheme rates went down by varying amounts less than 2.5% made people enormously excited, with the fact that the net increase (if prices are unchanged) in business cashflow is more like 2.1% because you have to take input tax into account apparently being too complicated for many people, including the BBC.

Which brings me to wonder just how much impact some of these changes can have: CAMRA is righteously incensed by a rise in beer duty, but what possible difference can 5p on a pint of beer make when the pub is selling it to you for £3? And the fuel price changes too vanish almost completely in the face of price cuts already happening as the oil price falls.

Is information overload making us all too excited? Should we all just calm down? Clearly the recession is being accelerated by everyone reacting much more quickly than they used to – or perhaps than they need?