Budget must focus on boosting productivity

Posted on 27 Feb 2017 by Jonny Williamson

Britain’s manufacturers are urging the Chancellor to maintain his focus on driving up productivity and pressing ahead with infrastructure investment in the forthcoming Budget to ensure that businesses are teed up for post-Brexit success.

Making the call, EEF believes the direction set by the Chancellor at the Autumn Statement should continue to provide the policy framework for what will be the first Budget of two this year.

It is also an opportunity to demonstrate that the policy priorities set out in the government’s recent Industrial Strategy green paper are being taken forward by all parts of government.

Government must enable more research and innovation, skills development and higher levels of investment through the potentially uncertain Brexit negotiations. This will be critical in laying the foundations for future growth and productivity across British manufacturing, according to EEF.

Actions that could underpin these outcomes include a positive outcome from the government’s review of the tax treatment of R&D which has the potential to make the R&D tax credit system even more attractive compared to international partners and bring forward additional innovation investment from businesses.

And with the Apprenticeship Levy due to hit businesses this year, further efforts and investment is needed to ensure that there is sufficient, high quality technical training provision to meet the needs of employers and learners.

The Chancellor must also act decisively to end the annual bout of controversy about the UK business rates system. It’s almost a unanimous view that this tax is far from perfect, but after successive rounds of consultation, business needs an unequivocal decision on the long term future of non-domestic property taxation.

Lee Hopley, chief economist, EEF.
Lee Hopley, chief economist, EEF.

EEF chief economist, Lee Hopley commented: “The economic indicators for the UK so far this year should offer the Chancellor further confidence about the resilience of the UK economy, but we remain some way off from the end of possible Brexit uncertainty.

“This Budget must drive ahead with the productivity-focused commitments that we saw in both the Autumn Statement and the government’s recent Industrial Strategy green paper. Action that enables more innovation, more investment and supports better skills and infrastructure in the economy are not optional if the UK is to be ready to make the most of post-Brexit opportunities.

“Just as important is ending the controversy over business rates. This is a significant tax on businesses, which has been subject to much consultation in recent years. This budget must ensure that the system meets fiscal and economic goals that are consistent with increasing productivity and doesn’t become an annual policy distraction.”

In its submission, EEF has made the following recommendations under four pillars:

Delivering a skilled and productive workforce

  • Funding for new Institutes of Technology should be competitive and targeted towards providers which demonstrate employer engagement and higher-level technical provision.
  • The Institute for Apprenticeships should be operational ahead of the new levy being introduced in April.

More reliable and resilient infrastructure

  • The government should look to extend local full fibre networks through a public sector demand aggregation approach and a targeted business voucher scheme to build backhaul provision.

A lower cost of doing business

  • Plant and machinery should be removed from the calculation of business rates bills.
  • Full details of the levy control framework spending out to 2025 should be provided.
  • Compensation must be provided to EIIs for the cost of RO/FITs in 2017 until the exemption is fully implemented.

Better support for growing businesses

  • The outcome of the review of the tax treatment of R&D should result in an uplift in the rate of the R&D tax credit for large companies and a formal consultation on broadening the definition of qualifying R&D for SMEs.
  • The new Industrial Strategy Challenge Fund should be delivered through Innovate UK and prioritise funding on the diffusion of enabling technologies such as those associated with the evolution phase of the Fourth Industrial Revolution (4IR).