Catching the peloton: How to increase low levels of business investment

Last week, the CBI released its new report, Catching the peloton, examining how to increase low levels of business investment which is a key driver of productivity and sustainable growth.

In the years since the financial crisis solving the productivity puzzle has been a key issue for both government and business. The CBI’s previous reports Regional growth and From ostrich to magpie focused on the role businesses can play in increasing productivity, whereas Catching the peloton focuses very much on the role of Government can take. The aim of this work is to develop the recommendations to include in the CBI’s Autumn Budget submission.

Read the full report Catching the peloton

The report examines why the UK fares so much worse than its international competitors when it comes to business investment, and what role the policy environment – and more specifically tax policy – can play in encouraging greater investment. Frequently cited reasons for why the UK lags in pace include measurement issues with the Office for National Statistics (ONS) data, the decline in our manufacturing base and the decision to exit the EU. But the CBI’s report shows that none of these can fully explain the gap – demonstrating there are other structural issues at play. As a result, the solution needs to be structural too.

There are a range of policy tools that can be used to create a positive policy environment for businesses, from investing in infrastructure and skills to improving access to finance. Tax policy is one of the few ways in which the government can directly stimulate demand for business investment. Therefore, the three headline recommendations that emerge from the report focus on the tax environment. Firstly, to conduct a review into how incentive regimes support investment in intangible assets, secondly to continue to support businesses’ confidence in the UK’s R&D tax reliefs and thirdly to increase the competitiveness in the UK’s capital allowance regime.