There’s another blow coming for embattled businesses
A smarter solution is to keep the ‘super deduction’, which could drive Britain’s competitiveness
If there’s one thing I’ve learnt throughout my career in business, it’s that raising business taxes is never the way to stimulate an economy and deliver growth. It puts boardrooms on edge and it makes investors think twice about their next move. I know, I’ve been in those discussions.
That’s why I’m concerned about the six-point increase to headline corporation tax coming down the line in April, especially when there’s nothing on offer to offset it. With levels of business investment only now returning to pre-covid levels, I’m worried about the kind of signal being sent to those looking to invest in the UK. For some, such a stark rise will be an immediate red flag.
With the Bank of England already warning about a 5.6pc fall in business investment this year, and the Government firmly set against a U-turn, we have to find a smarter solution. One that offsets the rise in corporation tax with investment incentives elsewhere and properly rewards those that invest in the UK.
Fortunately, there’s already a model to follow – one that delivers results.
The “super deduction”, designed by the Prime Minister, has had a significant effect on business investment decisions.
A Confederation of British Industry survey showed a fifth of business investment planned while it was in place would not have happened without it – with another fifth brought forward to benefit from it. These capital investments make our firms more effective, efficient and productive.
The super deduction is a policy that not only made chief executives take notice but makes Britain a far easier bet for investment. The bad news: it’s coming to an end just as the corporation tax rise kicks in and the hit to Britain’s competitiveness will be significant. With the super deduction in play, the UK has the fifth most competitive capital investment incentives in the OECD. Without it, we could slip back to 30th out of 38 countries.
So, let’s learn from our successes by replacing the super deduction with a permanent investment deduction of 100pc that would get firms of all sizes across the UK investing. That could deliver a massive uplift in capital spending that will not only pay for itself over time but actually bring in higher revenues. If that’s – wrongly in my opinion – viewed as too expensive right now, we could look at a way to start at a 50pc allowance in April and phase up to 100pc over three years.
Ahead of the Budget, this isn’t the only issue troubling the minds of executives. Boardrooms across the country are scratching their heads, wondering how they can access the people and skills they need to grow. It’s a long-standing problem, and certainly one I wrestled with in previous roles, but it only seems to be increasing year on year.
Talk to any business leader across the country and they will share their frustrations with an education and skills system that feels disconnected from the needs of modern business. I’ve lost count of the number of chief executives who tell me they want to invest in their own workforce but are being held back by the apprenticeship levy. Having been in charge of huge employers myself, what firms want is a range of high-quality training options, from vocational training to top-ups, modules and bootcamps, offered across a range of settings. The levy does not do that.
To their credit, many in government understand this – the level of levy funds being returned to Whitehall has been a none too subtle clue. We propose transforming the levy into a two-year “skills challenge fund” pilot that’s more flexible and responsive to the needs of business.
There’s also huge concern about the number of people that want to work but are leaving – or not joining – the workforce because of ill health or caring responsibilities. That’s not just a massive loss of talent, but a limiting factor on people’s life opportunities and economic growth – there are more than one million job vacancies in the UK right now. Helping economically inactive people back into the workforce is a more complex challenge. Firms clearly have a role to offer more flexible working patterns, but ultimately it’s an area where we need the Government to also stand up and be counted. With full-time nursery telegraph.co.uk/ ei-newsletter costs in England now accounting for almost two thirds of an average person’s weekly take-home pay, it’s time to take a detailed and clear-eyed look at a childcare system that’s failing working parents.
Let’s use the Budget to really review provision and ensure providers are receiving funding that reflects the true cost of their service. We also need to extend existing provision for three and four-year-olds to all one and two-year-olds to help more parents back into work.
On economic inactivity owing to ill health, something that’s now at its highest level in 20 years, we need to look at ways that employers can support workers in preventing health issues in the first place. Making access to support for musculoskeletal conditions, mental health and ergonomics – three of the highest workforce health risks – a non-taxable benefit, could not only improve the take up of this support and increase workforce output but reduce pressure on an overburdened NHS.
After a turbulent few years, investors are keeping their cards close to their chests when it comes to investment intentions. With all eyes on the Budget, my sense is that pragmatic business leaders will only wear that hike in corporation tax rise if the other sums add up. Without an incentive alongside, then April will just see a damaging hit to UK competitiveness. With news that there may be a little more fiscal headroom to play with, it feels like a case of “your move, Chancellor”.
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