The challenge from businesses to the Chancellor ahead of the autumn budget was to do enough to get companies investing in spite of the ongoing cocktail of regulatory changes and political uncertainty. By any reckoning, this was always going to be a tall order.
The last few months have seen the Treasury pulled every which way by requests for cash, reliefs, and a general reigning in of austerity. Couple this predicament with a tiny working majority in the House of Commons and the prospect of a hefty divorce bill with the EU, and you would be forgiven for thinking there were no easy choices facing Philip Hammond.
As it is, he will be applauded for beginning to look at some of the key challenges facing the business community at the moment, not least how to boost UK productivity in the face of difficult projections from the Office for Budget Responsibility. He also specifically addressed some of the key issues highlighted by the IoD in our budget submission, such as increasing the incentives to invest via the Enterprise Investment Scheme whilst also cutting out the potential for avoidance within the reliefs.
He also announced more support for lifelong learning, which has been a flagship part of the IoD’s education policy agenda recently and was the subject of a joint letter to the Chancellor from the IoD and Open University in the run-up to the budget. These are firm policy wins for the business community and we welcome their inclusion in the budget.
However, looking more broadly, it is also difficult to see the measures he announced being enough to galvanise business investment across the board over the next few months. Many employers are facing higher costs with changes to pension auto-enrolment, the national living wage, and strict new data protection rules all on the horizon. Couple this with ongoing political uncertainty, particularly for those trading with partners in the EU (or linked to those businesses via their supply chains), and there is a feeling that Mr Hammond could have given businesses a bit more.
The overall verdict from the IoD was that while he should be given credit for dipping his toe in the water, he still failed to make a splash.
Our reactions to the more specific measures announced are below:
When it comes to tax, the Chancellor has avoided many of the ‘own goals’ scored in recent Budgets and has sensibly resisted the calls for the VAT threshold to be slashed and targeted business tax reliefs to be repeated or curtailed.
Business leaders will be disappointed by the failure to increase business rates reliefs for SMEs hit by the recent valuation hike and by the failure to re-instate the Annual Investment Allowance to £500,000 or more – the only significant tax relief for mid-sized businesses.
On the other hand, the decision to double the Enterprise Investment Scheme annual allowance, if invested in knowledge-intensive companies, and proposals to clarify the position of pension funds for such investment within their portfolios will be warmly welcomed. The Chancellor should also have focussed upon enhancing the UK’s post-Brexit global trading focus by reducing the rate of Airline Passenger Duty on long-haul flights to no more than the amount levied by our major competing European economies.
The Chancellor missed the opportunity to boost consumer confidence by accelerating the implementation of his Manifesto commitments to a £12,500 personal income tax allowance and a £50,000 higher rate tax threshold, and by removing the iniquitous 60% income tax rate on earning above £50,000 (as the child benefit is recovered) and £100,000 (as the personal tax allowance is withdrawn).
We welcome many of the steps taken to tackle the UK’s housing market. No one, however, controls land supply more than the government, so it’s disappointing to focus mainly on alleged land-hoarding by developers, and ignore Green Belt Usage. Increasing availability of land, which makes up three-quarters of a home’s price, is essential to making it affordable again. Reviewing the Green Belt could increase access to green space, preserve and enhance the environment and match new sites for homes with accessible pre-existing infrastructure.
With investment prospects for the year ahead subdued, the Chancellor has given businesses little to sink their teeth into. This is more significant given the considerable downward revisions by the Office of Budget Responsibility to their GDP and productivity growth forecasts. Indeed, on average, it has revised trend productivity growth down by 0.7 percentage points a year. Meanwhile, average earnings growth looks set to stay relatively flat.
The Chancellor was put between a rock and hard place, and sticking to the existing prudential fiscal framework is important for anchoring investor expectations. However, with firms facing cost pressures, uncertainty, and squeezed revenues they will be unable to fund the type of investments that drive productivity and allow them to raise wages.
While the budget may not have been extravagant, on education and skills it was a solid and sturdy performance which got the fundamentals right. Amid a growing need for advanced skills in the labour market the Chancellor has set out a considered and important plan to build the long-term skills capacity of our economy.
The £600 bonus to schools for every new student who decides to take maths or further maths at A Levels, or Core Maths, is a welcome move. Alongside the £42m for teacher training, the aim to triple the number of fully-qualified computer science teachers, as well as the £177m to promote maths and computer science study are all sensible steps to address one of the biggest concerns businesses have had in recent years – the STEM skills gap.
A National Retraining Scheme for lifelong learning is something the IoD has been a leading advocate for over the past several years, so our members will be pleased to see this programme enacted. Enabling people to re-enter education throughout their working lives in order to re-train or up-skill will be vital to the future success of our economy and we look forward to working with government to develop these plans further.
The Chancellor acknowledged at the beginning of his speech that this Budget had to be seen in the context of Brexit, so we welcome him putting hard cash behind the Government’s preparations for leaving the EU. Business wants to know how the Cabinet is getting ready for our departure, as it will involve changes across so many areas of government, such as customs, regulators and our immigration system. We continue to stress the need for constant communication from ministers about their objectives for future trade arrangements between the UK and EU as the negotiations proceed.
The tech sector will welcome the tone set by the Government on making the UK a key global incubator for new technologies and scaling businesses in the coming years. The doubling of the EIS annual allowance for knowledge intensive industries also indicates that the Treasury is prepared to put its money where its mouth is when it comes to supporting start-ups in emerging sectors.
However, the Government has left itself a lot of work to do in the upcoming industrial strategy to reassure digital businesses and investors that the UK will remain an attractive destination for tech over the next few years. The short-term reliance on foreign skills within the tech sector will not be cancelled out by the longer term initiatives to boost home-grown talent. Meanwhile, uncertainty around future arrangements on data between the UK and EU remains the elephant in the room in the Brexit talks.
In the context of a grim productivity forecast and with inflation currently at 3%, cutting income tax by raising the personal allowance to £11,850 and the higher rate threshold to £46,350 is the right thing to do. Low paid workers will also be pleased with the increase in the National Living Wage to £7.83, although the fact this is 60p lower than the rate projected when the NLW was first announced underlines the difficult environment employers are currently operating in and businesses would have liked to see more measures to enable increased investment.
Broadband and communications
We welcome ramping up fibre and 5G investment from £25 to £290m over the next four years. But the sums allocated so far will still leave the UK far behind many other countries in digital connectivity. The time has come to announce a copper switch-off date and target a much higher national broadband speed, alongside a faster universal 4G coverage rollout. Committing to 5G infrastructure while most of the country still relies on copper wires is learning to dive before we can swim.
On the new Geospatial Data Commission
Data is the resource of the future, but we’re puzzled why the Geospatial Data Commission needs to be created as a separate entity to the Open Data Institute. Isn’t this work that the ODI could do? What would really make a difference would be if the Government mandated open access to Ordnance Survey data and treat it as a resource for start-ups to make the most of, rather than a regulated monopoly that often only big companies can afford.
Jamie Kerr, Head of External Affairs, IoD
Jamie leads the IoD’s engagement across government and the wider UK political community. He also leads on tech and entrepreneurship policy for the IoD, working closely alongside the IoD99, the IoD’s start-up network.
Jamie joined the IoD in June 2014 and previously managed parliamentary affairs, promoting the business policy agenda in Westminster. He has an MA in Politics from the University of Edinburgh and has previously worked in both the US House of Representatives and UK House of Commons.
He has an MA in Politics from the University of Edinburgh.