By Daniel Hunter

The head of the CBI will today (Wednesday) call on the Chancellor to use his final Budget before the General Election to prioritise measures which will create more growth opportunities for medium-sized firms — ‘The UK Mittelstand’, the backbone of the UK economy - while staying the course on the current fiscal reduction plans.

With the economic recovery well-established, the UK’s leading business organisation will urge the Chancellor to take action that will help support business investment and exports, providing long-term stability, certainty and simplifying the tax system — all to support ambitious UK firms.

The CBI’s proposals for its Budget Submission include:

- Making the Annual Investment Allowance permanent from 2016 at £250,000 — to provide stability that will in turn promote investment

- Boosting the availability of long-term growth capital, by promoting a market for privately placed debt

- Encourage the full spectrum of Research and Development (R&D) activity to take place in the UK, by enhancing the R&D tax credit to include the final manufacturing of prototypes

- Fully committing to reduce the Supplementary Charge on North Sea oil producers — to boost investment plans and create jobs

- If funds are available free childcare (currently 15 hours) should be extended to 1 and 2 year-olds.

John Cridland, CBI Director-General, said: “Although the economic recovery is well-rooted and bearing fruit, we still need a Budget that locks-in the successes from this Parliament and spends funds wisely on those areas which will keep growth on track.

“This is a good opportunity for the Chancellor before the election to support growth and investment well beyond the Election, providing stability, certainty and simplicity for the UK’s ‘Mittelstand’ to get themselves on the front foot.

“So the Chancellor must reward growing, ambitious firms with the tools to get on with the job of rebalancing the economy and lift productivity. There has been good progress on this front from the Government, and the Chancellor can now take further action to boost investment and innovation.

“If recent tax receipts have provided a bit more breathing space in public finances, the Chancellor may also want to make progress on bolder reforms, including steps to boost the provision of universal childcare.”

Boosting investment

The CBI is calling for the Government to:

- Make the Annual Investment Allowance (AIA) permanent at £250,000 boosting capital spending in plant and machinery. This would cost £670 million in 2016/17 before rising to £754 million by 2019/20

- Boost the availability of long-term growth capital, the CBI recently outlined in Financing our Future Economy why and how the next Government must promote a market for privately placed debt, which could unlock up to £15 billion. In addition the CBI has proposed measures to increase equity investment in medium-sized firms

- Reduce the burden on North Sea oil producers by fully reversing the 2011 increase in the Supplementary Charge back to 20%. This would make the UK’s headline tax rates on oil and gas the lowest in the North Sea, alongside The Netherlands.

Mr Cridland said: “A permanent AIA set at £250,000 will get more of our mid-sized companies investing in their factories and production lines, with the UK currently comparing poorly with many key European neighbours, where smaller firms account for half of total business investment.

“With the sharp fall in oil prices our North Sea oil producers are really hurting, with investment in oil fields and highly skilled jobs taking a hit. Reducing the tax burden they face at this challenging time could help protect jobs and secure the long-term health of a vital UK sector.”

Super-charging innovation

While much has been done to encourage a higher contribution to GDP growth from domestic sources other than private consumption, further steps are needed to rebalance the economy and address the productivity challenge.

The CBI is calling for the Government to:

- Introduce an incentive that will encourage post-Research and Development (R&D) activity in the UK. Boosting the R&D tax credit to include the manufacture of innovations would cost £310 million in 2015/16, rising to £372 million in 2019/20.

Mr Cridland said: “Innovation is fundamental to long-term growth and creating more high-skilled jobs in the economy. If we want to really get the full benefit of the great work going on in labs and workshops up and down the country, we need to encourage more firms to build their prototypes here in the UK.

“There is a growing pattern of re-shoring production back home and a super-charged tax credit could help keep that ball rolling.”

Reducing complexity in the tax system

The UK has made great progress in sending a positive signal about the UK as a place to do business through the Corporation Tax Roadmap, but much more can be done to support growing firms navigate an overly complex system.

The CBI is calling for:

- A rise in the threshold for firms paying Quarterly Instalment Payments of Corporation Tax from £1.5 million to £5 million

- A reduction in the number of companies caught within transfer pricing rules by increasing the threshold from 250 employees to 500.

Mr Cridland said: “Businesses must and do pay their fair share of tax, but for growing firms a complex, outdated system stifles their ability to invest. Some current rules jeopardise the cashflows of ambitious firms, so we want to see 37,000 more small and mid-sized businesses paying their Corporation Tax on an annual basis only, not wasting valuable time and money making payments every three months.”

A fiscally neutral Budget

With deficit reduction almost at the halfway point the CBI wants this package of measures to be implemented in a fiscally neutral way. The CBI package costs £0.6 billion in 2015/16, before rising to £1.6 billion in 2019/20 — excluding the cost of the childcare proposals. These policies should be funded through efficiency savings in the short run and reform of public services over the course of the next Parliament.

Other areas for action the CBI highlighted are:

- An extension of free childcare provision of 15 hours to all children aged 1 and 2, with the longer-term aim of increasing the number of hours provided

- At a minimum, the Government should freeze Band B Air Passenger Duty (the remaining long-haul band) with a static cost of £54 million, before rising to £370 million by the end of the Parliament

- The Government must address skills shortages in the economy by developing partnership funding models for business-relevant degrees. It should also press ahead with plans to reform apprentice training funding to put businesses more in control

- The Government review on the Business Rates tax system must be ambitious and far-reaching — the CBI wants the smallest firms removed from paying rates, changing the indexation of rates from RPI to CPI and introducing more frequent valuations.