Outlook: Brown's best gift to business is a stable economy

IS IT really possible to combine the policy objectives of social fairness and an enterprise economy? The Chancellor thinks it is, and that was the theme of his pre-Budget statement yesterday. Most of history suggests powerfully that it is not.

The more the ideal of social equality is pursued, the more the raison d'etre of enterprise is undermined. Enterprise is about competition, winners and losers, and the individual accumulation of wealth. Social equality is about the very antithesis of these things.

Leaving aside these awkward doctrinal contradictions, Gordon Brown does none the less seem to be striking the right note in his determination to foster a genuinely entrepreneurial culture in Britain. The quarrel lies not so much with his enterprise objectives, which like motherhood and apple pie, everyone agrees with these days, but with the unnecessarily complicated way he is setting about trying to achieve them.

As ever with this Government, the detail of the measures announced yesterday has been left for later elucidation, but even accepting that things will eventually become clearer, the impression is of another layer of complexity added to an already excessively complicated tax system.

Take the tax free shares for employees initiative, billed as the most generous share incentive scheme a British government has ever introduced. It sounds great in principle, but what of the practice? If the scheme is as described, employees are highly likely to treat the opportunity of up to pounds 7,500 worth of tax free shares as an expected and added annual bonus.

Woe betide any employer that doesn't offer this perk; it will come to be seen as the equivalent of a poor payer and will be penalised by the workforce accordingly. Rather than encouraging employee loyalty and participation, then, the effect may well be to introduce another round of competitive wage inflation into the system.

Furthermore, there wouldn't be any need to introduce this rather messy system of tax breaks into employee share ownership at all if the Government were to do the sensible thing and abolish capital gains tax altogether. On this front there does seem to be progress of sorts. The present, excessively complicated system of tapered reliefs is to be replaced with a more simple one, with the tax on capital gain falling to 22 per cent after three years, and just 10 per cent after five years.

But how much better and efficient it would have been simply to settle at a low level flat rate on all capital gain, whether short or long term, or perhaps abolish the tax altogether. As far as individual investors are concerned, it doesn't raise much money anyway. The market doesn't discriminate against short term gain, and there is no reason the tax system should. There is some truth in the Revenue's claim that such action would create a tax evaders charter, encouraging companies to pay individuals in capital gain rather than income, but there are always ways of dealing with those that abuse the system.

As for the rest, it was like a penny bazaar - a series of cheap little "enterprise and fairness" measures dressed up in colourful wrapping paper. Where there was added tax, the Chancellor was keen to hypothecate it into good, vote winning causes - the national health service and the road building programme. And in the few instances outside investment where there was less, it was for other good causes - pensioners and charities.

In the end, the greatest gift that government can give to business and enterprise lies not in enterprise and investment tax breaks, but in sound and stable macro economic policy. On this front, the Chancellor does genuinely seem to be delivering the goods, though it is arguable how much of this is down to him, and how much to the fair wind of a favourable world economy. The public finances are in better shape than at any stage since the 1960s, and helped by the Asian crisis and the strong pound, inflation remains in abeyance.

For the time being, the Chancellor has luck and destiny on his side. To succeed, he doesn't need to do much at all; it's mainly about just not fouling up. But as all long serving Chancellors know to their cost, luck doesn't last for ever. It seems unlikely in the extreme that the Chancellor has entirely eradicated boom and bust. The real test of his enterprise credentials will come with the next downturn.