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Chancellor's growth plan must show political sacrifice to prevent business hibernation - CBI chief

On the week of the Autumn Statement, the CBI Director-General, Tony Danker, says that business agrees that the Chancellor will have to make tough fiscal choices on spending and tax to achieve market stability and control inflation. However, business fears that the Government is not willing to make tough political choices to get growth going in 2023.

Not matching action on spending and tax with measures to tackle labour shortages and productivity is likely to be damaging in the short and long term. Many businesses are doing their 2023 budgets right now. They do see growth ahead and want to invest but fear that all signals from policymakers are warning them against doing so.

A statement on Thursday that doesn’t encourage investment in capital projects and new innovation risks another decade of flatlining productivity for the UK, and a possible recurrence of spending cuts and tax rises in the future.

Understanding the need for stability, the CBI has outlined a limited number of proposals. These include long term tax reform to match new high corporation tax with investment allowances for firms who invest in the economy, as well as continued use of the Government balance sheet to create markets and stimulate further green investment by the private sector.

It’s main and modest fiscal ask is to smooth the upcoming cliff-edge in business rates in April 2023 which threatens the viability of many UK high streets.

However, most of the CBI submission is focused on economic reforms that don’t cost the Chancellor anything. Changes to immigration, regulation and planning are now critical levers to get firms to invest but will require the Government to make political sacrifices.

Tony Danker, CBI Director-General, said:

“The Autumn Statement will need to deliver the market stability the new Prime Minister and Chancellor have pledged since taking office. But while I have no problem with tough choices to deliver stability, I do worry that the Government won’t take tough choices to deliver growth.

“All of us need to accept now that with fiscal and monetary policy tightening, we need many more pro-growth policies for our economy, if we’re to avoid a decade of no growth.

“The Chancellor has said he will set out a plan for growth on Thursday. But if this is only warm words and aspirations it won’t stop businesses pulling back from investment. It must tackle the real barriers we face right now.

“A desperate lack of workers is inflating wages and stopping firms growing.  Our planning rules allow local officials to hamper major projects we need. Our regulatory regime doesn’t do enough to incentivise investment and innovation  and it is far more important to change that than partisan efforts to simply repeal EU laws - which wont make any positive difference to most firms.

“We need to make the UK an attractive place to invest. After the mini-Budget many global firms are choosing to avoid investing here in 2023. And in the past three weeks I have talked to hundreds of firms who need to decide this month whether to invest for next year or whether to go into hibernation – in fear of predicted recession and no action from policymakers.

"There are real opportunities for growth in Britain next year. These obviously can’t now be achieved from a major stimulus package, but nor can Government believe that warm words alone will give firms confidence.”

The CBI has developed a series of policies to boost our potential/supply-side growth including:

Immigration and Skills

  • Global competition for talent is fierce and shortages are both limiting firms’ growth ambitions and fuelling wage inflation.
  • Complement investment in the domestic workforce by using existing flexibility in the immigration system to help firms access the people and skills they need.
  • Implement an updated Shortage Occupation List that introduces flexibility to skill level eligibility where salary thresholds are met, add student and graduate visa routes, and introduce visas linked to specific economic projects
  • Signal intent to develop workplace skills strategies with a focus on upskilling and retraining including transforming the Apprenticeship Levy into a flexible Skills Challenge Fund

Tax roadmap 

  • If firms can’t operate in a low tax environment, at least ensure they operate in a predictable one with a comprehensive tax roadmap that sets out how effective business tax rates will remain globally competitive
  • The roadmap should also set how the business tax landscape will deliver shared priorities on decarbonisation, digitisation, and compliance
  • Take the pressure off government finances by unlocking domestic and international private investment with a simplified, UK-wide full expensing regime.

Regulation

  • Use regulation effectively as a lever for growth, with reform focused on delivering desired outcomes: business competitiveness, removing uncertainty, and supporting investment and innovation
  • Reduce uncertainty around the Retained EU Law Bill by flipping the focus to an ‘opt-out’ approach. Prioritise maintaining market access in established markets, removing genuine red tape and using smart, outcomes-based regulation to outcompete rivals in emerging industries
  • Boost competitiveness by developing a more proportionate and tailored approach to financial services that boosts capital into pro-growth projects, as well as signalling intention to finalise previously agreed regulatory priorities (e.g. Basel III, Solvency II and MREL)

Planning

  • Unlock and accelerate private investments by streamlining the slow and inconsistent planning system.
  • Update the National Planning Policy Framework, speed-up decision-making for major developments, and bring onshore wind planning policy in-line with other infrastructure projects
  • Extend permitted development rights to cover pro-growth projects like renewable energy schemes for commercial premises

 

Original article link: https://www.cbi.org.uk/media-centre/articles/chancellors-growth-plan-must-show-political-sacrifice-to-prevent-business-hibernation-cbi-chief/

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