Budget to set tone for post-Brexit economy

The UK faces challenges that can only be solved through partnership. In its pre-Budget letter to the Chancellor, the CBI proposes ways to unlock enterprise, increase the country’s competitiveness and attract more investors, all aimed at lifting productivity and sharing prosperity. This is particularly important as the UK has the lowest level of business investment as a proportion of GDP in the G7, with the gap widening even further.

Read the CBI's Budget Submission

To set the UK on the right path, Carolyn Fairbairn, the CBI’s Director-General, urges the Chancellor of the Exchequer to focus on three key areas to unlock growth in her submission ahead of the Budget: reform business rates to ensure firms can invest and grow, build on recent announcements to make the apprenticeship levy work; and improve capital allowances to drive investment particularly in digital and low carbon technologies.

The Budget must also help tackle the immediate impact of Brexit uncertainty. Increasing the annual investment allowance will help lift the fog of uncertainty that is holding back investment, while hundreds of thousands of firms need help planning for the changes ahead. They urgently need a one-stop shop for advice and information as the clock ticks down to March.

Carolyn Fairbairn, CBI Director-General, said:

“As we near the end of Brexit negotiations, the world’s gaze is fixed on these shores. This Budget is a pivotal moment and chance to showcase the UK as an open, collaborative and confident nation. Entrepreneurs here and around the world need to see a UK committed to harnessing the power of business to innovate and tackle problems, from sustainability to inequality.

“With skills shortages, uncertainty and the squeeze in incomes on the rise, this couldn’t be a more critical time to plug the drain on the UK’s productivity and deliver prosperity that is shared by workforces and communities across the country.

“The Government must focus its attention on making the UK a shining beacon of enterprise, at the top of every investment league table and known worldwide as a country that attracts, not deters, capital and talent.”

Business priorities in the CBI’s Budget Submission include:

• Increase the Annual Investment Allowance to £500,000 for two years to lift UK competitiveness and innovation
• Review the capital allowances regime next year with a focus on newer technology so the UK has one of the most competitive regimes in the G7 by 2030
• Introduce a Business Growth Accelerator to provide a year’s relief from business rates when building or renovating a store, factory or office, and abolish downwards transition so businesses can benefit from property devaluations now, boosting growth around the UK
• Review the business rates model in 2019/20 with a focus on investing in digital, new technologies and energy efficiency
• Double the budget of the Institute for Apprenticeships to £28 million to give it the capacity to approve training schemes quickly and efficiently
• Invest in an online one-stop shop of advice and information for businesses about leaving the European Union.

The CBI’s package of proposals costs just over £1.5 billion in 2019/20 and £2 billion in 2020/21. This accounts for less than 0.2% of official forecasts for government spending.

On tax, regulation and investment, Carolyn said:

“The single most effective remedy to the structural challenges facing the British economy is a simple one – increased business investment.

“By investing in workers, equipment and crucially, digital and new technologies, the UK can establish itself in pole position for the future. This is also the best way to raise productivity, and prosperity in all corners of the country. A win-win for all.

“UK businesses have been underinvesting for many years, with the country suffering from the lowest level of business investment as a proportion of GDP in the G7. This is not because they don’t want to invest, but because the conditions are so often not conducive to doing so.

“With the right government policy and support – from reforming business rates to ensuring the UK remains globally attractive to the financial services sector – this can change. As the UK leaves the EU, there is no better moment than this Budget to show the Government is committed to real partnership with business.

“Wherever possible, the UK must move in step internationally to address the tax balance in a way that is sustainable and doesn’t damage the UK's global competitive advantage.”

Tax, regulation and investment recommendations for the Government include:

• Commit to deliver the world’s most competitive research and development (R&D) tax credit by ensuring it accurately captures the breadth of business innovation
• Delay the introduction of off-payroll working rules (IR35) in the private sector until April 2020 at the earliest
• Update the intangible fixed assets (IFA) regime by reversing changes introduced in the Finance Act of 2015
• Commit to review financial services taxation in due course, with a view to establishing a stable and certain tax framework for the future.

On skills, Carolyn said:

“While investing in capital is vital, there will not be an inch of progress in tackling the economy’s underlying challenges unless we invest in people.

“The Chancellor’s recent decision to listen to calls from the CBI to reform the Apprentice Levy is hugely welcome. By raising the limit on apprenticeship levy transfers from 10% to 25%, more firms and apprentices in supply chains will be able to benefit.  And firms are also pleased to see the increase in funding for the National Retraining Partnership.

“But the Apprenticeship Levy is still a heavy part of the cumulative burden weighing on firms and needs ongoing reform.”

Skills recommendations for the Government include:

• Make it easier for small businesses (SME) to access apprenticeship levy funds by reducing the cap for SMEs from 10% to 5%
• Set out a clear long-term version to introduce a flexible skills levy after 2020, to include life-long learning, ensuring business has ample opportunity to feed in.

On post-Brexit trade, Carolyn said:

“It is fundamental that a Withdrawal Agreement with the EU is agreed. This will provide temporary but essential relief for firms of all sizes. Then attention can turn to the vital task of finalising our future economic and trading relationship with the EU.

“In order for businesses to navigate the challenges and opportunities of Brexit, they badly need advice and information. The Government should ensure that funds allocated to Brexit readiness are used properly and communicate with business effectively.”

Post-Brexit trade recommendations for the Government include:

• Invest in an online one-stop shop of advice and information for businesses about leaving the European Union
• Continue to allocate resources to HMRC for the expansion of the Civil Service to deal with post-Brexit government functions.

On energy and infrastructure, Carolyn said:

“The technologies of the future are rapidly driving changes in energy and infrastructure. The UK should be grasping the opportunities presented by the booming green energy sector by incentivising low-carbon products.

“The transition to zero-emissions is not just about ensuring we build the vehicles – that’s only half the story. The other half is about ensuring demand, by making vehicles affordable and investing in infrastructure.

“And we need to keep up the pace on developing world-beating digital infrastructure. Fast and reliable internet connections are mission critical for firms, particularly across the UK’s regions, so the Government must lay out the steps to 5G.”

Energy and infrastructure recommendations for the Government include:

• Urgently confirm whether the UK will remain in the EU Emissions Trading System (ETS) after Brexit as well as the future of the Carbon Price Floor
• Bring forward planned changes to the company car tax regime to incentivise businesses to invest in vehicles with the lowest emissions
• Close the gaps in existing digital infrastructure provision and clearly outline the UK’s path to a 5G future.