By Daniel Hunter
The forthcoming Autumn Statement must set out the government’s ambition to create a stronger economy based on increased investment and exports and back that by prioritising measures that will help to deliver it, according to EEF, the manufacturers’ organisation.
Despite some encouraging third quarter GDP figures, most recent indicators have been more downbeat and the government risks missing its targets on growth and public sector debt.
Much of this weakness is down to the state of the world economy which is outside the government’s control but it should take action that would support firms looking to invest, export and grow and send a clear signal to them of its intentions. This means not just setting out measures to boost growth but doing so within a framework in which its overall objectives are clear.
EEF reiterated its support for the Fiscal Mandate but suggested that the best way to enhance its credibility was not through further austerity but through providing greater visibility on future spending totals and signalling a switch from current to capital spending. This shift would finance much needed investment in our infrastructure and provide an immediate boost to growth and should be achieved in the short-term by making use of departmental underspends and, in the medium-term, by shifting priorities.
Looking specifically at business investment, the government should increase the support provided by the capital allowances system, which is the second least supportive in the OECD and take action to increase competition in the banking sector to ensure that companies looking to invest can access funding at the right cost and the right terms and conditions.
Boosting business investment, which is still 15% below its pre-recession peak, is critical to growth, the longer-term health of the economy and meeting the government’s £1trillion exports target.
“Despite a better third quarter, our economy has shown no growth in the past year and business investment remains 15% below its pre-recession peak, There’s little that the government can do about the world economy but there’s a lot it can do at home," EEF Chief Executive, Terry Scuoler, said.
“In recent months, the government has been more vocal about the need for growth and importance of speeding up delivery. The Autumn Statement now needs to match these good intentions by providing some clarity on how this will happen.
“It should start by being clear on its ambitions for the economy in a way that will drive action across Whitehall and send a clear signal to business about its intentions. We have seen how the £1trillion export target is stimulating action across government but we now must see the same urgency and clarity of purpose on all the issues that matter to growth.
“Raising investment, in both the public and private sector is also critical to growth. The Autumn Statement should set out a short and medium term shift in spending towards infrastructure projects and take action to ensure that companies that are looking to invest have the right support from our tax system and our banking sector.”
Amongst EEF’s key recommendations are
1. Access to Finance
· The focus should be increasing competition in SME banking
· An immediate review should looking at progress on increasing competition and alternatives to accelerate progress including full account number portability, a switching incentive, lowering barriers to new entrants and the merits of an earlier referral of SME banking to the Competition Commission.
· A review of the feasibility of a bank or network of regional banks capitalised by the public sector
2. Tax and Investment
· A time limited 100% first year capital allowances for two years. Evidence from similar schemes introduced in the US and Canada has indicated a substantial boost to private sector investment. If the government has concerns about the short-term cash flow cost of such a move, it should look at alternatives such as measures that ease cashflow constraints and encourage business investment now.
· A re-allocation of the £5.3bn underspend by government departments in 2011-12 towards investment in infrastructure. In addition, government must review the impact of the Infrastructure Guarantee Scheme ahead of the Budget. Should insufficient progress have been made by then, the eligibility criteria should be reviewed and the government should consider re-focusing the resources dedicated to the scheme to alternative policies.
· Accelerating moves to make it easier for employers to invest in skills by, for example, developing mechanisms to help them shape apprenticeship frameworks and by putting money in the hands of firms investing in apprenticeships rather than training providers.
5. Green taxes
· At the 2012 Budget government committed to a review of the Carbon Reduction Commitment Energy Efficiency Scheme. Government must now exclude manufacturers who already have Climate Change Agreements form the scheme
· Take action to ensure that the current support package for Electro-Intensive Industries provides the required compensation and commit to an extension of the package beyond the current Spending Review period.
· Build on the recent shift to a One In, Two Out Target on regulation by widening its focus to include the regulatory burden associated with tax administration.
7. Regional Growth Fund:
· Government has indicated that the RGF is a key part of its efforts to rebalance the economy. It must clarify the level of funding that will be made available through it during the remainder of this Spending Review period and the timetable for allocating it and whether the fund will continue beyond 2015.
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