EEF Budget Submission 2011

Posted on 28 Feb 2011 by The Manufacturer

The Manufacturers' Organisation calls for a growth mandate in its Budget submission, released today.

In 2010, in his ‘emergency budget’, George Osborne boldly set out the coalition’s plans for eliminating the structural deficit over the course of the parliament.

He said it was his ‘first challenge…to set the fiscal mandate’; that it was the ‘unavoidable budget’.
This fiscal plan, though tough, gave necessary signals to the market that the deficit would be reined in. Manufacturers, and more generally markets, welcomed this reassurance. It means interest rates staying lower for longer and removes a key source of uncertainty.

But now it is 2011 and the new challenge to the government is supporting growth. This is the year the public sector cuts really start to bite and where private sector growth must take up the slack.

Just as we needed a Fiscal Mandate in 2010, we now need a Growth Mandate in 2011.This will signal that the government is serious about enhancing the competitiveness of our business environment and helping the private sector deliver the growth we need.

The reality is that we need to see this commitment because manufacturers have a choice. And faced with that choice, that smart money is on investing in an economy that offers a business environment that can compete with the best in the world. We need that economy to be the UK.

In practice the Growth Mandate would set out priority areas for growth that the government would address and against which it will be measured. Like the Fiscal Mandate, the Growth Mandate should span the lifetime of a parliament with each subsequent Budget and policy announcement showing further incremental progress.

This multi-year view must be taken. The fiscal mandate cannot be threatened so a big bang approach is not viable.

But the barriers to growth must gradually and consistently be dismantled. And like the fiscal mandate a long term view on the growth mandate will deliver a confidence dividend to businesses who see the business environment progressively improving.

Each Budget should therefore report, relative to the last budget on the following measures:

• The change in total tax costs faced by businesses;
• Estimates of the net change in bank and non-bank external finance to non-financial companies;
• The change in total climate and environment policy costs faced by businesses;
• All new and withdrawn regulations, and the change in the total cost of all regulation;
• The change in the proportion of companies facing skills shortage and hard-to-fill vacancies.
• The change in apprenticeship starts at each level.

The challenge is that this holds the government to account for delivering consistent progress.

But a growth mandate isn’t a replacement for action at Budget 2011. Instead, Budget 2011 offers the first opportunity for the government to take small steps forward to support growth – small steps that point to large ambitions.

The Chancellor must support private sector efforts to invest, innovate, and export and thus rebalance the economy. We see four key areas where progress needs to be shown:
– Tax;
– Access to finance;
– Skills; and
– Regulation.

On tax we need the government to appreciate that firms make decisions based on the basket of taxes they face, not just the headline rate. We need reform on the R&D tax credit and capital allowances that properly account for the costs manufacturers face. Extending the remit of the OTS would help too by allowing recommendations to be made on structural changes that will deliver simplification benefits.

The environmental tax burden needs to be reduced. Any support we give for a Carbon Tax is conditional on reductions in other energy taxes.

Finance remains a problem for firms post crisis. We need the Independent Commission on Banking to deliver measures that not only make the banking system safer but also increase competition – because growing firms often get their first lending deals secured through banks looking to enter the market.

We also need more alternative sources of finance – both non-bank debt and venture capital, critical funding for firms that aren’t ready for bank debt.

Future funding and demand for 14-19 diplomas needs to be reviewed with the aim of increasing support and improving delivery. And the government should introduce a pilot initiative through the Growth & Innovation Fund to support SME collaboration on industry placements

On regulation the government needs to match its rhetoric with action by reviewing the cumulative impact of thresholds for regulation and commit to further action on reform as appropriate. As scope for simplification of individual regulations has largely been exhausted, commitment to structural reform of entire regulatory domains is needed

All these examples provide opportunities for government action to support growth.

In 2011, George Osborne will deliver his second budget. We believe his challenge is to set the Growth Mandate for a private sector-led recovery.