Budget should promote investment and exports to rebalance economy
The CBI’s Budget Submission calls on the Chancellor to prioritise measures to boost business investment and trade. The UK’s leading business group expects robust growth this year and next but warned of the need to rebalance away from consumption to secure a sustainable recovery.
The CBI’s proposals for the Budget include:
• Introducing an energy package which encourages investment in generation and helps businesses struggling with high energy costs
• Extending the Annual Investment Allowance for smaller firms beyond 2015
• Incentivising longer-term equity investment through tax relief for retail investors
• Introducing a capital allowance for structures and buildings
• Freezing Air Passenger Duty.
John Cridland, CBI director-general, said: “The economic recovery is taking hold with businesses and consumers both feeling more confident but we must make sure that it really takes root and this can only be done through rebalancing.
“There are encouraging signs that business investment and net trade are on the up and now is the perfect time for the Government to get full square behind it, particularly in the case of smaller firms.
“Above all, British businesses must have secure and affordable energy that enables them to compete internationally and keep jobs in the UK.”
Energy
The CBI warned that the UK’s long-term energy investment needs must be balanced against the costs borne by businesses and households.
A robust EU carbon price is necessary to incentivise investment but the price level of the EU Emissions Trading Scheme (ETS) is likely to be lower than the UK Carbon Price Floor (CPF) for the foreseeable future, so firms in the UK are paying more in top-ups to make up the difference. British businesses, especially those that are energy-intensive and are operating internationally, are therefore being put at a disadvantage.
The CBI is calling for the Government to:
• Freeze the Carbon Price Floor (CPF) from 2015/16
• Extend the Energy-Intensive Industry Compensation Package (EII)
• Exempt Combined Heat and Power (CHP) from CPF.
John said: “It’s vital that we have a robust carbon price across Europe if we are to obtain the investment in energy infrastructure that the UK needs.
“At the same time, we need to recognise that British businesses, especially energy-intensive industries, are struggling with high energy costs so we want to freeze the Carbon Price Floor to help firms compete internationally, as well as ease pressure on household bills.”
Investment and exports
The CBI is calling for the Government to:
• Extend the Annual Investment Allowance at £250,000 beyond its current deadline of January 2015 – this would boost capital spending in plant and machinery which is below the EU average.
• Introduce a capital allowance for structures and buildings to encourage investment in critical areas like energy infrastructure – the UK continues to be let down by a historic under-investment in infrastructure, which is deterred by the lower returns on structures and buildings than in other countries
• Freeze UK Air Passenger Duty (APD), which is the highest in the EU, and review the APD system, especially for long-haul flights where it is the most distortive.
John said: “To successfully rebalance our economy we need to give businesses a leg up to invest in new equipment and to sell more of their goods and services around the world.”
Support for growing small and medium-sized firms
To help firms access the finance they need to grow and to boost alternative sources, the CBI is calling on the Government to:
• Introduce an incentive for holding individual equity holdings beyond five years, which could be achieved by applying a relief on Capital Gains Tax
• Make the successful Seed Enterprise Investment Scheme (SEIS) permanent.
The Government should also review other barriers to finance including:
Reviewing the level of collateral held at the Bank of England for banks to access the payments system boosting the take-up of retail bonds by keeping compliance costs down Ensuring that forthcoming regulation of the crowd-funding and peer-to-peer lending is proportionate.
John said: “We need to nurture the UK’s vibrant alternative finance market and encourage even more competition in banking so that businesses can get growth capital.
“Equity finance could play an important role in longer-term capital but the take-up in the UK is behind the EU average and well behind the likes of Sweden and Norway. Many smaller firms say they would be more likely to use equity finance if the investment was longer-term, which is why we want a tax incentive to encourage this.”
Housing
The CBI is calling on the Government to:
• Introduce a more specific timetable for asset sales
• List all public sector property holdings on a central Rightmove-type website
• Hold local authorities accountable to set aside five years’ land supply for house builders
• Tackle the tax burden which institutional investors face when contemplating investment decisions in the private rental sector.
John said: “We simply aren’t building enough affordable housing in the UK – the Government must make a concerted effort to boost supply, particularly for the private rental sector.”
A fiscally neutral Budget
With the deficit reduction less than half complete the CBI wants this package of measures to be implemented in a fiscally neutral way. It should be paid for by efficiency savings gained through public services reform.
The Government should maintain the pensions’ income tax relief and the tax-free lump sum and the NICs relief on employer pension contributions, which encourages employers to go beyond the statutory minimum.
Other areas for action the CBI highlighted are to:
• Review the outdated business rates system
• Maintain Public Sector Net Investment at its current share of GDP
• Protect science spending in real terms for the remainder of the fiscal consolidation plan
• Retain the current level of support for the apprenticeship programme.
