Give business a break: Why the chancellor’s Budget should prioritise stability over radicalism
The chancellor faces an important choice this week, as he delivers his fourth big fiscal plan in 12 months. It comes down to a choice between yet another radical Budget – with all the uncertainty and disruption that may cause for businesses – or a steadier approach that gives firms and the government itself the time and space needed to work through existing commitments and reforms.
The UK’s recovery from the last recession was a testament to the tenacity and versatility of British business. Many companies remain confident, buoyant and busy. Yet most economic forecasts, including the BCC’s own, are now showing that growth is slowing amid a softening economic environment. Against this backdrop of global uncertainty, firms value stability that much more.
Accordingly, we have prioritised three Budget promises that – if delivered – would give businesses greater stability and confidence to invest.
First, a commitment to no new taxes on businesses or entrepreneurs for the remainder of this parliament. The recently-imposed burdens of higher dividends tax, higher insurance premium tax, the apprenticeship levy, and the costs of auto-enrolment already weigh heavily on the shoulders of British firms. Many tell us that these new costs – plus the administration around quarterly tax reporting – are affecting their recruitment and expansion plans. The chancellor needs to give a breather to businesses; after all, they are still working through the consequences of the changes introduced over the past 12 months. A commitment to no new business taxes, to go alongside the government’s promises on reducing red tape, would inspire real confidence.
The Treasury could use this “breather” to consider ways to simplify business tax – starting with its forthcoming Business Tax Roadmap. The focus needs to be on making it easier for businesses to navigate the UK’s fiendishly complex tax system, and restore confidence that all firms are paying their fair share.
Second, the government must finally commit to a long-overdue reform of business rates. The current system is quite simply broken: it discourages businesses from improving premises and investing in new plant and machinery, thereby undermining the very improvements in productivity that the Treasury is so keen to see. Reform of the system needs to include a light-touch annual revaluation regime, to stop businesses being hit hard by an increase every five years; the removal of investments in plant, machinery, and micro-generation from the ratings system; and the abolition of the annual uplift multiplier, which doesn’t take into account the performance of businesses. Fixes to rates would unlock more investment from firms’ reserves – which will be especially critical if the economy slows down further.
Third, and crucially, HMRC needs to be refocused on supporting businesses and particularly SMEs. Companies continue to express serious reservations about their treatment at the hands of HMRC, including the quality of service provided and the constant threat of being called out for getting things wrong in an increasingly complex tax environment. Surely supporting businesses to get their tax affairs right – rather than heavy-handed enforcement actions against smaller firms that make mistakes – would increase confidence among firms and free up their time to get on with running their businesses.
Yes, as a business lobby, we still want to see big decisions on infrastructure investment – on airport capacity, energy security, improving and extending our digital infrastructure, and upgrading the country’s ageing road and rail networks. But political realities may force many of these decisions into the back half of this year.
So some promises now on rates, costs and better treatment at the hands of the Revenue would go a long way in the short term – and create a more stable and supportive environment for businesses. Firms across the UK will be hoping the chancellor takes note.