Chancellor’s Spring Statement must be the time to act or economy will drift back to low growth – CBI Chief

CBI submission reveals how UK can escape a low-growth trap with net £100bn prize for the economy 

Around £100bn could be added to the Treasury’s coffers by 2030 if the UK bucks current predictions and achieves a more ambitious 2.5% rate of growth, according to the latest CBI analysis.

Last week, the Chancellor set out his economic vision for the future in the Mais lecture, identifying Capital, People and Ideas as priorities to create a higher trajectory for growth, a lower tax economy and a new culture of enterprise.

The CBI is therefore urging the Government not to ‘waste a single moment’ and use the upcoming Spring Statement as a launchpad to achieve just that. With the OBR projecting post-recovery economic growth of just 1.3-1.7%, the Spring Statement must be fully utilised if the economy is to see higher growth. Without a permanent investment incentive to replace the super-deduction, for example, CBI forecasts predict the UK will remain bottom for business investment among the G7 in 2026.

The UK’s leading business organisation has set out a range of sustainable pro-growth policies aimed at sparking underperforming productivity growth via business investment. The suite of measures (see attached letter for full submission) includes policies primed to power productivity, spur innovation, investment, and energy efficiency, as well as access to critically in-demand skills:

• A permanent investment deduction, boosting business investment by £40bn a year by 2026 and offsetting the impact of corporation tax rise.
• With the current model failing to incentivise investment in the right kind of training, the Apprenticeship Levy should be turned into a Skills Challenge Fund that delivers both employer flexibility and high-quality training – as well as rewarding those firms that outperform on skills investment.
• Bring agility to our new points-based immigration system by creating an independent Council for Future Skills – modelled on the Low Pay Commission – to review current labour shortages and skills gaps, and make recommendations on how to combine business action, skills policies and immigration to deliver a workforce fit for 21^st
• Tackle high energy prices by improving home energy efficiency through new grants for decarbonised heating systems, improving energy security and establishing new markets to get green growth going.
• Creating an Office for Future Regulation by building on the success of the Solvency II announcement. Reform regulation to attract investment and become world-leading in online safety and the industries of the future.

Speaking ahead of the Spring Statement, CBI Director General Tony Danker said:

“Business backs the Chancellor's desire to foster a renewed culture of enterprise and deliver a more ambitious growth rate. His vision set out only last week to leverage the tax and regulatory system to promote business investment, upskill Britain’s workforce and stimulate innovation is the right recipe for future success.

“Faced with a record tax burden, a cost-of-living crisis, wage pressures and the end of the super-deduction, firms will be looking to the Spring Statement for a clear signal that the government’s ambition will be matched by action.

“That is the time to act if we want to push the economy onto a higher growth trajectory. It takes time for policies to kick in and deliver results, so there’s no point in waiting until an autumn Budget. Without serious action, we risk the economy simply drifting towards low growth once the V-shape bounce ends. The Government cannot waste a single moment.

“We all share the vision of a more sustainable and competitive economy that can pay down its debts and invest in public services. But that means backing business and going all-in on the UK’s strengths. Fail to act immediately on flatlining growth and we risk that brighter future slipping through our fingers.”

On the CBI’s proposals for growth and investment, CBI Chief Economist Rain Newton-Smith said:

“This isn’t a case of business going cap-in-hand to government and asking for a handout during hard times. Government support for business provided a lifeline throughout the pandemic, and firms the length and breadth of the country are eternally grateful for that.

“Instead, we’re pitching a series of  solutions that will lift the UK from the bottom of the G7 league on investment and drive productivity gains. With a relentless focus on unleashing investment-led growth, we’re showing how to deliver an economy that can respond to mounting spending pressures, while remaining lean, green and competitive.”

On the need to unleash business investment, Rain Newton-Smith said:

“Business holds the key to a future UK economy where everyone can prosper, and that’s why we need to strain every sinew to catalyse business investment now. Make no mistake, business is ready to step-up and unleash the wave of investment we need. But right now, it’s operating with one hand tied behind its back.

“With firms operating on a six to eighteen-month investment cycle, and against huge pressures on cashflow, the window to prevent capital spending falling next year and outperform growth predictions is in danger of slamming shut. Firms need guarantees that government is on their side. Falter now – particularly on a replacement for the super-deduction – and it could be fatal to Britain’s ambitions for growth and competitiveness.”

On ‘going for green growth’, Rain Newton-Smith said:

“With COP26 fresh in our minds, investing in green growth isn’t just the right thing to do, it’s the smart thing too. From decarbonising homes and buildings to building a first-class infrastructure for electric vehicles, the UK has an opportunity to be a world leader in net zero technology and delivery.

“Businesses are already aware of the size of the prize, but lack of clear direction from government is holding them back. By getting strategies and incentives in place now, we can unleash the wave of private investment needed to turn ambition into action.”

On tax and regulation, Rain Newton-Smith, said:

“With business rates continuing to place a crippling burden on firms, particularly those still reeling from the pandemic, reform of the rates system is long overdue.

“By this autumn, we want to see liabilities come down in-line with property values following the 2023 revaluation, remove downwards transition and introducing a permanent cap on the Uniform Business Rate – following an initial freeze.

“We also need to use the system to encourage businesses investment and growth. A 5-year business rates discount on all rates payable for businesses who invest in their properties is the perfect way to do that – while also promoting key net zero objectives like energy efficiency improvements.”

On greening the tax system, Rain Newton-Smith, said:

“Reforming the tax system to incentivise ‘green’ capital investments is vital for both achieving our 2050 net zero target and capitalising on the economic opportunities provided by decarbonisation. That’s why firms are looking to government for a clear strategy on the way ahead.

“By increasing capital allowances to 120% of an investment’s value, we can give firms the confidence to invest early, and reap the rewards of green technologies, without being put off by high upfront costs. Extending allowances to electric vehicle purchases – and rentals – could provide the certainty needed to spur greater investment in sustainable transport.

“For SME’s we should look at establishing a tax credit ‘green’ uplift to help unlock green investments and prevent them from missing out on the opportunities provided by net zero.”