IoD proposes key supply side reforms to Chancellor for upcoming fiscal plan
Ahead of the medium-term fiscal plan announcement on 31st October [since rescheduled for 17th November], the Institute of Directors has written to Chancellor of the Exchequer Jeremy Hunt setting out its proposals for encouraging growth in the economy.
In the letter, the IoD has put forwards the following proposals for supply side reforms:
- Make the capital expenditure 130% super-deduction permanent. IoD survey data has found a measurable positive impact from the super-deduction, suggesting business investment would have been even lower in recent months if the super-deduction did not exist.
- Establish an independent economy-wide Shortage Occupations Agency. Building on the Future Skills Unit being developed within the Department for Education, establish a new, fully independent, Shortage Occupations Agency, with a statutory remit to produce a specific list of current and future skills shortages areas for the UK economy. That would enable policy to be developed to fill the gaps in a systematic way, working together with industry and training providers. The resulting list could also be used as the basis for providing tax incentives to employers to provide workplace training in these specific areas. Deadweight loss would not be an issue if the credits were only available in the areas where gaps have been identified. This would also address the market failure of firms that train their staff in shortage areas then being more likely to lose them to competitors also seeking the same skills.
- Permit sole traders to deduct the costs of training in new areas for their business. Similarly, there is a wider public interest in sole traders being able to tax deduct training costs in new business areas if that training is in a national shortage area identified by the new agency, again incentivising people to acquire the skills our country needs and reducing the ‘skills shortages’ pain point for businesses.
- Use Corporation Tax to incentivise net zero. To date, government policy has failed to address the contribution that SMEs can make to achieve our national climate change goals. The best way to spur change would be a clear, commercial incentive for business to invest in energy efficiency measures through a differential corporation tax for companies who have achieved net zero. By creating a ‘wedge’ between the corporation tax paid by those businesses that are net zero and those that are not, there would be an incentive for all businesses to achieve the desired change, and so reduce our dependence on global energy markets.
- ‘Help to Green’ vouchers for smaller firms. As initially proposed by the Federation of Small Businesses, additional direct help may be needed to facilitate the energy efficiency for smaller firms.
Jonathan Geldart, Director General of the Institute of Directors, said:
“Macroeconomic stability is the rock on which prosperity is built. Without stability and confidence, growth is impossible. Our members tell us that the top negative issue affecting their organisations at the moment is UK economic conditions. Our monthly tracker of director-level confidence in prospects for the UK macroeconomy is as low as in the first few weeks of the pandemic, and political instability in the UK government is a key driver of that, alongside the rate of inflation.
“We therefore welcome actions to reassure the bond markets that UK government policies are fully costed and urge swift reassurance that credible and proportionate fiscal rules remain in place, designed to bring down the stock of government debt as a proportion of GDP and nurture sustainable economic growth in the medium- to long-term.”
The IoD’s full letter to the Chancellor of the Exchequer can be read here.