How to make a ‘smorgasbord’ Budget more appetising for business
If the Chancellor is incapable of making the bold tax reforms businesses need at the upcoming Budget, there are some smaller measures that would be beneficial, says Louise Hellem
At the CBI we are urging the Chancellor to make bold moves on Wednesday and not to subject the economy to death by a thousand taxes. While nothing is certain, all signals point to a Budget defined by the decisions it takes on tax and it looks likely the Chancellor will shy away from more fundamental reforms – opting instead for a “smorgasbord” of smaller measures. Although what businesses really want is a stable, simple tax system to support their investments, even in this less optimal scenario there are still some good options she could serve up to support the growth the country needs and address the cost of living.
Take VAT on donated goods: at the moment, if a business does the right thing and gives its spare stock to a charity to share with those who need it, they pay VAT. If they send it to landfill they don’t. The CBI has been working with retailers, charities and key Labour figures including Gordon Brown to fix that absurdity – improving the range and amount of goods businesses can give away.
And what about securing UK energy supplies? Businesses back the transition to clean energy but they know the UK will need oil and gas in the mix with renewables for some years to come. The current energy profits levy makes it uneconomic to invest in the North Sea. EPL isn’t a windfall tax – it captures all profits, not just those made when the oil price shoots up, without giving allowances for investment. And we need investment into the skilled workers and existing supply chains necessary for current energy security and future clean energy projects such as carbon capture and storage. This government and the last both agreed we need a better way to tax genuine excess profits – giving business the certainty to invest in the North Sea but still capturing windfalls in future. Implementing this already agreed change from 2026 would give the certainty needed to secure the UK’s energy future whereas the current delay is depressing investment.
Business rates
Now is also a good time to talk about business rates. The latest changes to business rates multipliers will hit some of our key retailers and infrastructure the hardest. Big shops are as important to high streets as small businesses. It’s the big stores that provide the draw to shopping centres and high streets, and they sell food and essentials we all need at prices people can afford. Excluding food retailers from the new higher £500,000 multiplier would go some way to mitigating the impact of the business rates increases coming next year and limit the increase in costs passed on to already squeezed consumers doing their weekly shop.
The government also needs to look again at business rates on some of our key infrastructure – from phone lines to railways and airports. Eurotunnel has already had to freeze investment because higher rates will make projects unviable – and they won’t be the only ones. If the government wants investment in new runways, better and more affordable public transport connections across the country, and faster fibre broadband roll out excluding airports and any infrastructure on the central list from business rates would be a good start.
The government is rightly concerned about rates of economic activity driven by long-term illness. The government can kill two birds with one stone by making it easier and cheaper for employers to support staff health. It costs the NHS an average of £2,000 per hospital admission for flu in the under 65s – a private flu jab costs as little as £10. Tax-free flu jabs, eye tests and employee assistance programmes at work – providing helplines and counselling to address stress, money worries and family issues could boost productivity by reducing sick days and ultimately help the public purse as demand for NHS services drops and fewer people leave employment and move onto welfare due to ill health.
Finally, the UK’s world-leading start-ups and scale-ups in tech, life sciences and media could get a boost through better tax incentives. Raise the limits on venture capital investment for those needing more money to scale-up and increase benefits from share schemes – so people get more recognition for their hard work when the business takes off. In the increasingly tough competition for global talent, the UK can and should continue to attract the best.
These are just some of the ways the government can help growth and investment with this Budget. These measures might not be the full-scale tax reform businesses would like to see, but at least they would make a smorgasbord of changes more appetising.
Louise Hellem is Chief Economist at CBI