Weaker growth now biggest threat to fiscal credibility

Posted on 17 Oct 2011 by The Manufacturer

Government’s autumn statement must show a clear programme of reform to boost business growth for this parliament's duration, combined with immediate measures to tackle plummeting confidence, says EEF.

Publishing its submission, manufacturers’ organisation EEF argues that the autumn statement must drive forward the reforms that will deliver stronger, sustainable and more balanced growth.

“The Government must get its Growth Review back on track,” said EEF’s Terry Scuoler. “Manufacturers are looking to invest but they need to see Government take the right decisions on issues such as boosting competition in the banking sector, reducing employment regulation and addressing the cost of fighting climate change. They also need to hear how Government plans to transform the business environment by the end of this Parliament.”

He continued: “Last year, the biggest threat to growth came from our fiscal deficit. Today the biggest threat to reducing that deficit comes from weak growth. Failure to act now will only make the future challenges even bigger and risks undermining our hard-won fiscal credibility.”

A suite of announcements on banking reform, securing the future for energy-intensive sectors and the second phase of the Growth Review is expected from the Chancellor alongside the autumn statement.

EEF said that bold actions are needed if government is to deliver its complementary aims of reducing the deficit and driving forward private sector growth. It recommends the statement should cover banking reform and a tax compensation package for energy-intensive companies.

A strong response is needed to the ICB recommendations to boost competition in the banking sector by enhancing the sale of branches from Lloyds Banking Group and improving the switching process for customers not receiving the right service from their bank to move to an alternative provider.

The organisation says the Chancellor must also introduce a compensation package which effectively benefits those energy-intensive industries most affected by its climate change policies.

EEF claims that the Growth Review is not currently targeting the most important drivers of growth or systemically dismantling the biggest barriers faced by business.

For manufacturers, it says, the biggest priorities for growth are reducing the burden of taxes and regulation. This makes it easier for companies to find the finance and skills they need to grow their businesses. EEF calls for a refocused Growth Review in the autumn statement, and one that makes clear to business the direction of the Review in terms of the business environment it is seeking to create by the end of this Parliament in 2015.

The specific measures that EEF is calling for immediately are:

1. The introduction of 100% first year capital allowances for a time limited period of two years.
2. Reform of the R&D tax credit to make it more effective at boosting investment and creating high value jobs.
3. The extension of the Business Growth Fund for companies between £5m and £50m to cover debt as well as equity.
4. Reversing the rise in employment regulation by rethinking proposals on Equal Pay Audits, Employment Tribunal fines and keeping new proposals on parental leave and flexible working simple
5. Helping companies to invest in apprenticeships by urgently clarifying their legal status.