HIGHER BUSINESS TAXES AND LOWER BUSINESS INVESTMENT ARE NOT A PLAN FOR GROWTH – CBI CHIEF
Government ambition is right, but lack of policy detail and pace are now the common complaints of most UK firms (@CBItweets)
In a speech today (Monday), the CBI Director-General, Tony Danker, will argue that this autumn requires ‘big choices from the Government’ if the UK is to unleash business investment and ‘forge a new growth story to compete in the world’.
After last week’s Government announcement on plans to increase National Insurance Contributions to support social care, UK business is clear that the time for further business tax increases must end. Instead, Government must use the autumn to ‘flip business taxation on its head’ and reward those firms who invest; essential to a high-growth, sustainable recovery.
The speech, taking place at the Alliance Manchester Business School, will see Mr Danker also warn the Government that a ‘return to business as usual in our economic policy, at this unique moment in British economic history, would be a mistake’. The UK is lagging behind some of its international competitors in driving investment in the industries of the future. Tony will say: ‘The lack of detail and pace from the Government on some of the big economic choices we must make as a country, are the biggest concerns for business’.
He identifies four key levers the Government can use to get businesses investing more:
- Smarter taxation – reward those firms who invest; for example, stop punishing greening UK building stock through business rate increases;
- New skills for new markets – creating individual training accounts to more easily access support, for those most in need and/or out of work;
- Catalytic public investment – to speed up the development of major infrastructure projects, new industries, and cutting-edge tech;
- Market making – replicate the successes of offshore wind in hydrogen and other emerging industries and fundamentally rebalance UK economic regulation.
On the important economic choices, we face as a country this autumn, Tony will say:
“This autumn requires big choices. Choices that will define a decade. We’re at an inflexion point. Brexit, Covid, Climate Change – all demand that the UK forges a new growth story to compete in the world. And believe me this will be a competition – for new markets, new skills, and technological advantage.
“In recent months I have talked to hundreds of UK businesses. Many of whom are global firms or have global customers. They tell me what other countries are doing – the strategies they have, the investments governments are making, and how the UK compares.
“One of the great risks of the Budget, the Spending Review, and the Global Investment Summit – all set for this autumn; as well as our net-zero strategy, infrastructure strategy, and skills policy – is that we are too complacent, too proud about what we’ve done so far. That we regard the benchmark as beating the policies of UK governments past, rather than global competitors present.
“But the 2021 reality is quite different. Over the last two years, every country’s strategy to win the future has shifted dramatically. Every country is choosing to invest in the future – the future engines of economic growth.”
On unleashing business investment and creating a smarter taxation system – the first lever identified, he will say:
“Investing in the UK. Investing by the UK. That must be our mantra now – so that the decade ahead does not repeat the low growth, zero productivity of the decade past. And government holds the key to unlocking it all.
“Looking forward, it’s clear that consumption is likely to rage in the short run. Consumers have saved and will spend. So, watch the news in coming months and you’re likely to feel that things are going well. But unless investment catches up, rather than falls behind, that story will be short lived.
“After the pandemic, we in business believe that we should pay our fair share to tackle the debts of Covid. That is why many business leaders accepted the jaw-dropping six-point corporate tax increase announced in March. But there is a real risk now that the government will keep turning to business taxes to carry the load.
“Choosing national insurance for social care funding is the latest example. And I am deeply worried the Government thinks that taxing business – perhaps more politically palatable – is without consequence to growth.
“It’s not. Raising business taxes too far has always been self-defeating as it stymies further investment.
“And it misses a smarter way to view business taxation. To flip it on its head. If we want to kickstart the growth capital we need for the next decade, we should do so by rewarding those businesses who choose to invest.
“Let me talk about one of them. Our failing business rates system and how and how it makes something of a mockery of our commitment to Net Zero. More than half of business investment is subject to business rates. And UK property tax levels are four times higher than Germany, and 50 per cent higher than the G7 average as a share of GDP.
“There is much about it that’s unfair and it’s changing the face of British high streets. But amazingly it’s deterring firms from decarbonising their operations – because investment in energy-efficiency measures, can make them liable for higher rates. We need to do better, fairer and greener.”
On UK investment performance historically, Tony will say:
“Unfortunately, business investment in the UK has been seriously underpowered since the 1990s, deteriorating from 14.7% of GDP in 1989, to a low of 10% at end of 2019. Unsurprisingly, the pandemic hit business investment hard, and we’re still set to be 5% below our pre-COVID levels at end of 2022.
“It’s a terrible time to be poor at investment. In our landmark report on the UK’s economic future – Seize the Moment – we identified where this decade’s growth opportunities will be. All the prizes – from AI, Fintech, Genomics, Renewables –are in industries where success requires new investment, and where other large economies are investing now.
“We know government is switching on to this challenge. The recent letter from the Prime Minister and Chancellor encouraging institutional investors to back assets that they may not have considered in the past is testament to that. And the Chancellor took dramatic action in the March Budget with his innovative new super-deduction to incentivise tangible investment. But the super-deduction merely brings spend forward and only for certain firms. And we need an overhaul of Solvency II – the prudential framework for insurance – to unlock institutional investment in new assets.”
On how the UK compares against other nations on investment, Tony will say:
“Between 2021-2025, the UK Government is projected to invest an average of 3.4% of GDP, compared to 3.9% in the US, 4.1% in Canada, 5.9% in Japan and 9.0% in China.
“Take Net-Zero – a central part of our own and competitors’, recovery plans. Already, the US administration has outlined plans for $800bn of investment in net-zero tech over the next decade, supported by a $1.2tn Bipartisan Infrastructure Bill and future legislation that could potentially provide a further $3.5tn of investment.
“While EU member states have so far pledged €223bn worth of green spending via the EU Recovery and Resilience Fund, with more likely to come.
“Respectively, these US and EU packages – which don’t even account for further spending at state or member-state level – represent around 3.8% and 1.8% of the size of their 2019 economies. That compares to just 0.55% for the UK’s climate funding.
Further international comparison in notes to editors
“With so much at stake, and so much competition, it’s bold moves like these that are grabbing CEOs’ attention.
“The window is closing fast for the UK to deliver the detailed roadmaps, substantial financial support, and speed of movement it takes to lead in these growing markets. Businesses want this. Investors too. In fact, they are crying out for it.
“The good news is that whenever I speak to the Prime Minister, the Chancellor, or the Business Secretary, they want it too. And the government’s recent innovation strategy says all the right things to capitalise on the UK’s potential to be a global innovation hub, and leader. But that ambition now needs to be backed with action. So, it’s time for us to join forces and get it done.”
On the three remaining government levers to unlock investment, Tony will say:
On new skills for new markets
“It’s uncomfortable to hear, but we’ve benefitted from abundant labour for a long time now. Yet the labour shortages we’re hearing about – in sectors like logistics and transport, food and drink manufacturing, engineering and technology – aren’t something businesses can resolve by simply increasing hourly rates.
“We need to be honest about what this is going to take rather than government pretending firms can solve this overnight. If you want to solve the immediate shortages, you’re going to need to use the new immigration system we developed post-Brexit to bring in only the skills we need. It was built for exactly this situation!
“And if you want to fix the long-term challenge, we need business, government and learners to invest more in skills development. In Seize the Moment, we identified a seismic reskilling challenge for the next decade: some 90% of the workforce will need to learn new skills. It will cost an additional £13bn a year simply to stop skills gaps worsening.
“Our skills system is full of perverse incentives. Providers prevented from delivering what businesses need by government targets. Businesses encouraged to awkwardly re-badge other training as apprenticeships to try to spend their Levy pot. Learners subsidised to gain skills that don’t match the shortages in our economy today.
“And employers are committed to working with government – on its Skills and Post-16 Education Bill – to fix some of this.
“It’s why business believes in the creation of individual training accounts to help those out of work get started. But if you care about this, you must reform the failing apprenticeship levy. “We all want better apprenticeships but that can’t be our only skills bet. By now, it has to be plainly clear to government that a narrow levy isn’t capable of delivering the increase in investment in the skills that the country needs.”
On catalytic public investment
“We need government to ensure the UK’s competitiveness by investing in new growth markets. These are those foundational and catalytic public investments that the market can’t and won’t make ─ to speed up the development of major infrastructure projects, new industries, and cutting-edge tech critical to future prosperity.
“In infrastructure, uncertainties around government investment, commitments and financing models continue to delay key projects, denting market confidence and hampering regions’ ability to level up. This includes HS2, road improvements in the South-East and South-West, such as A303 at Stonehenge and the Lower Thames Crossing, the Heathrow Expansion and regional airport projects like Bristol and Leeds Bradford.
“Government’s new infrastructure-delivery taskforce, Project Speed can help address this. But action from the UK Infrastructure Bank – working with the Infrastructure and Projects Authority – is needed to overhaul the pipeline, plug the detail gaps and boost investors’ confidence.”
On market-making
“I know that the Chancellor is worried about public spending. And, perhaps, the UK government will choose not to compete with other governments levels of investment. That’s a big choice but it’s loaded with risk. And it raises the bar for the UK to crowd in the private sector ─ to do more of the heavy lifting.
“The good news is that we have considerable private sector resources available in our capital markets, and we have a strong presence of global companies. We also have new-found regulatory freedoms. So how do we bring these UK advantages to bear?
“This can be done by government playing the role of market maker to unlock private sector investment for growth industries. This means doing what no-one else can – setting up the necessary market rules, pricing structures, institutional bodies, and incentives to get more private investment flowing in.
“We’ve done it well before, with UK Offshore Wind. Private sector expertise, skills and money built the industry. But it took government to put in place the right policies, like the Climate Change Act; the right regulatory frameworks, like Contracts for Difference; and the right incentives, investment, research bodies and expertise, like the Green Investment Bank and the Offshore Renewable Energy Catapult, to make this a highly investable market.
“Now, we need to replicate this success in other sectors – even faster. We waited so long for the newly published Hydrogen Strategy to give us the business model, the timetable, the terms of trade – all the market making mechanisms to capitalise on our first mover advantage. Instead, we got more consultations. It’s holding-back cutting-edge initiatives.”
Concluding on the need for these four levers to be used to also attract international investors, Tony will say:
“Taken together these will achieve the seismic shift in the UK’s investment mindset we need, and also show international investors that the UK is more than a castle on a hill.
“Because let’s be clear, these four choices – that drive domestic investment – are the preconditions to attracting foreign investment to our shores. We know that because global investors have told us. They, more it seems than British policymakers, view our country’s offer against our competitors. And they have told us these things are where the UK must do more. Because they are ready to go, the real question is where?
“These decisions need to come now. The UK has a packed autumn ahead – with the Global Investment Summit, Budget, Comprehensive Spending Review and COP26.
“The best possible time to make choices. To invest in the UK and to show the world we mean business. The CBI has a mantra – seize the moment. It’s our imperative to government but also to business.
“Together we can choose investing in the UK. Investing by the UK. Let that be the legacy of Brexit; let that be the legacy of Covid; and let that be the path to a net zero-world.”
To see the speech at 2pm on Monday 13 September, you can register for the event here, or watch the live streams available via the CBI’s and AMBS social channels
Responses