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IoD Autumn Statement response

26 Nov 2015

The Institute of Directors welcomed the Chancellor’s recommitment to achieving a budget surplus by the end of the Parliament, but warned that he could be blown off course if the economy does not continue as strongly as expected.  Simon Walker, Director General of the IoD, said:

“Businesses see strong public finances as the basis for sustainable economic growth, and will welcome Osborne’s confirmation today that he aims to run a budget surplus by the end of the Parliament. The Chancellor was dealt a remarkably strong hand by the Office of Budget Responsibility, which is predicting stronger growth, lower than expected borrowing costs and significantly higher tax receipts. He’s chosen to play this hand with more spending than expected. Although departmental budgets outside the ringfence are seeing significant reductions in expenditure, overall the Chancellor will continue to preside over a rising real terms budget this Parliament.

“There will be plenty of complaints about individual cuts, but it’s important to remember that total debt will still be colossal, over £1.715 trillion (70% of GDP), by the end of the spending review period. The Chancellor will know that if the economy chills and tax receipts disappoint, his plans will suddenly become much harder to achieve. With over a dozen tax consultations launched since the election, there is a real worry for businesses that next year’s Budget will see further tax increases.  

“The major business tax announcement of this Autumn Statement was the Apprenticeship Levy, which can only be described as a new payroll tax. At 0.5% of payroll it will be a big new cost for many companies, including medium-sized ones. We are very concerned by the Government’s assumption that a quarter of the money collected will be spent on just administering the levy. Firms have been promised they will get back more than they put in, but it’s not clear how this will happen if so much is being lost in bureaucracy.

“The IoD supports the aim of deficit reduction, and recognises that this means cuts to business support. UK trade and investment, one of the most effective schemes, has taken a hit. The focus now must be getting the biggest bang for the taxpayer’s buck by concentrating on the export support that delivers the biggest growth in trade.”

On the government’s fiscal plans and the extension of Help-to-Buy in London, James Sproule, Chief Economist at the Institute of Directors, said:

“The Chancellor’s fiscal plans rely on a number of assumptions about the strength of tax revenues and a benign outlook for economic growth. While tax receipts can and do rise rapidly in good economic times, any economic stumbling is going to require a rapid recalculation of how much the government can spend, and where further reductions and efficiencies may need to be found.

“The extension of Help-to-Buy in London is not the answer to the capital’s housing crisis. Taxpayer-funded loans that further stimulate demand miss the fundamental issue – not enough houses are being built. While it may be political popular, in the medium-term it will stoke prices and make it harder for people to get on the housing ladder. We need to focus on planning liberalisation across the capital to promote much higher levels of housebuilding.”

On the new details about the Apprenticeship Levy, Seamus Nevin, Head of Employment and Skills Policy said:

“Employers are committed to tackling the skills shortage and apprenticeships will be a big help. Businesses are keen to work with government but the focus needs to be on quality training, not just the race to reach the targeted 3 million apprenticeship starts.

“The Chancellor cannot pretend the apprenticeship levy is anything but a payroll tax – and a considerable one which will raise £12 billion over the parliament. At 0.5% of payroll, it will be a big hit to big employers. With the OBR also saying that employers could pass the cost of the levy onto employees, the government must also be careful of the impact the levy, combined with the incoming national living wage, could have on wage growth and job creation.

“Moreover, businesses still need clarity about how they will get more out of the levy than they put in. It is a worry that the government are working on the assumption that up to one-quarter of the money collected will be spent on administration and bureaucracy, rather than the apprentices themselves.”

On the extension of business rates exemptions, Stephen Herring, Head of Taxation, said:

“Small businesses will cheer another year of business rates relief. While the whole system requires more comprehensive reform, another year of exemptions will provide welcome respite for the smallest firms. Along with the upcoming devolution of business rates, these measures will help local authorities revitalise high streets, small-scale manufacturing and win business investment.”

On changes to UK Trade and Investment, Allie Renison, Head of EU and Trade Policy, said:

“While there is some contradiction between the Government committing to such an extremely ambitious exports target and continuing to chip away at UKTI’s budget, we welcome the focus on reforming and refocusing UKTI to deliver more targeted value-add activity for business.

“Not all of UKTI’s services have always been value-for-money in terms of business take-up, so concentrating on the practical needs of enterprise to expand abroad is vital. Businesses will only consider exporting if they have the right information about new markets. The focus must be to deliver UKTI services digitally wherever possible to cut costs without making it harder for businesses to get the information they need and value. A live database of export opportunities, for instance, is easy for UKTI to run, easy for businesses to access and will help British firms win business overseas.

“While there is a pressing need to better integrate commercial expertise and know-how into trade promotion initiatives, UKTI should take care not to try and compete with the direct support offered by the private sector, but rather collaborate and act as a facilitator for business.

On support for Energy Intensive Industries, the commitment to nuclear energy and investment in road improvements, Dan Lewis, Senior Energy and Infrastructure Adviser, said:

“An exemption for Energy Intensive Industries, including the steel industry, from the Renewables Obligation and the Feed-In Tariffs, puts them on level terms with Germany. However, this may be a few years too late for many businesses. If we want to keep Britain’s heavy industry here, there is still more action required.

“Nuclear energy needs to play a big part in Britain’s future. Small Modular Reactors have tremendous potential and, after being designed, can be built quickly, with faster learning curves than big projects. They can also be built in volume and deployed in inland industrial sites without the need for large volumes of cooling water. They will only be a success, however, with government support and we urge them to make sure that plenty of competitors take part in the design competition.

“The doubling of the annual road investment to nearly £4bn by the end of the parliament is a dramatic vote of confidence in Britain’s road economy, which will create 1,300 miles of additional lanes. Traffic growth has outstripped road building for decades, so it’s high time for catch-up investment. Ring-fencing vehicle exercise duty for a new Roads Fund will create a new line of accountability between road users and make sure government focuses on constant upgrades and improvements.”

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