Path to prosperity starts by connecting business and living costs
In a keynote speech at the recent CBI Midlands Business Dinner, CBI chair Cressida Hogg CBE spoke about the importance of making a clear link between business and living costs as the country looks to chart a path back to higher economic growth.
Speaking to business leaders in Derby, Hogg said that high business costs – particularly
energy and labour costs – are squeezing firms and restricting their ability to invest, hire and grow. That has an impact on jobs, wages and opportunities in communities across the length and breadth of the country.
Hogg went on to say that higher employer National Insurance Contributions and uncertainty around employment regulation are making it harder for firms to invest, create jobs and plan for the future. She pointed to CBI research showing that nine in ten UK businesses are facing higher energy costs, with four in ten cutting investment as a direct result.
Ahead of the Autumn Budget, Hogg will welcome the government’s commitment to reindustrialise the economy, as well as devolve economic decision-making to make it more responsive to local needs.
She argued that effective devolution can be a powerful tool to unlock regional growth and support reindustrialisation, adding: “Good devolution should make it easier to invest, expand and create jobs across the country. It should create clarity and consistency, not a patchwork of different systems and standards. That must be the test. And the CBI is ready to work with mayors and government to get that right.”
On backing businesses in the Midlands, Hogg said: “More than half a million people work in manufacturing across the East and West Midlands. Nearly one pound in every four of England’s goods exports comes from this region.
“That industrial base is supported by powerful universities and research institutions. And the Midlands is home to one of the country’s largest concentrations of financial and professional services outside London.
“Put all that together and the Midlands is a region with serious global potential. And in Westminster we now have a government with serious plans to unleash that potential.”
On the government’s plans for devolution and place-based growth, she will said: “This government has set a new direction, defined by regional growth, devolution and reindustrialisation.
“But the next step is to give business confidence in what reindustrialisation means. It must be based on a clear understanding of the nature and needs of modern industry…. modern industry is an ecosystem. A tax on one sector is a handbrake on all of them and we cannot afford for our fast-growing financial services, or any other sector, to become an easy target for tax rises.
“Even our strongest sectors face intense global competition. And recent high-profile decisions to invest, list or expand elsewhere have done nothing to strengthen the UK’s pitch.
“So, we need local growth plans, yes, but we also need a better national pitch for why the UK is a good place to do business… For why global firms should invest here. Why they should hire here. And why they should stay and grow here. Ultimately reindustrialisation is an investment decision. And if we are going to win it, then we urgently need to bring down the cost of doing business.”
On hiring costs, she said: “In the last financial year, businesses paid £123bn in Employer National Insurance. That is a 28% rise in a single year. More than the country spends on education, and almost twice the defence budget. And taxation is only part of the picture. There are serious concerns about what the Employment Rights Act’s secondary legislation will mean for business. Together, the cost and complexity of hiring are undermining UK growth.
“The rise in National Insurance has proved a step too far. But cutting the headline rate now would carry a significant price tag. Raising the threshold from £5,000 to £6,000 would cost less and target support at the entry-level jobs being frozen out by high costs.”
On employment regulation, she said: “It is right to tackle one-sided flexibility. But guaranteed hours rules must be carefully targeted. Overly broad or rigid rules will squeeze out the flexible, entry-level jobs that are often the gateway to a career. That is why we are recommending a 52-week reference period and a low-hours threshold of no more than eight hours a week.”
On energy costs, she said: “First, on energy: remove the policy costs from business’s electricity bills. If the UK wants energy-intensive industry, British electricity cannot remain a competitive disadvantage.”
On business taxes, she said: “The tourism tax needs an urgent rethink. As it stands, it would add another damaging burden to one of the sectors least able to bear it. Policy works best when it is done with business not to it.
“Our business rates system too often functions as a tax on ambition where cliff edges can penalise a business simply for expanding or investing. We have told ministers: use the Budget to tackle the worst of those cliff edges now and set a credible path to full reform.”