Seven Ways Hammond Could Please U.K. Businesses in His Budget

(Bloomberg) -- What can Chancellor of the Exchequer Philip Hammond do to keep U.K. businesses happy in his budget statement next week?

Brexit uncertainty hangs over every investment decision, and companies are worried about flagging productivity and a shortage of skills they need to compete with European rivals after Britain’s scheduled departure from the European Union in March. Hammond faces pressure to loosen the purse strings, and U.K. Plc isn’t shy about making its demands known.

Seven Ways Hammond Could Please U.K. Businesses in His Budget

“The autumn budget should not be a business-as-usual budget,’’ Suren Thiru, head of economics at the British Chambers of Commerce, said in an interview. “The focus of this budget should be to help business navigate the choppy waters we’re likely to see over the next few years.”

Based on the budget submissions of the five main business lobby groups -- the British Chambers of Commerce, the Confederation of British Industry, the EEF manufacturing lobby, the Institute of Directors and the Federation of Small Businesses -- here is a snapshot of what companies want:

1) Change the Apprenticeship Levy

All five lobby groups want action here: The program is supposed to help fill skills gaps, yet businesses say it doesn’t work as intended. According to the IoD, only 14 percent of its members think it’s fit for purpose.

Under the program, larger employers pay the levy, which they can then recoup to spend on training apprentices. They can transfer up to 10 percent of their payment to companies in their own supply chain, while smaller employers who don’t pay the levy can still access funds by contributing a 10 percent so-called co-investment toward training costs.

But the BCC and IoD say the levy should be available to pay for other forms of training that could boost productivity. Four of the five want the co-investment threshold scrapped or cut, and the cap on transferable funds to be raised. The fifth, the EEF, wants a longer window to reclaim funds so companies that hire apprentices less frequently don’t miss out, and also wants firms to be able to spend more on training each individual.

2) Reform Business Rates

Four of the five lobby groups want changes to business rates -- taxes on offices, shops and factories based on the value of the premises.

The CBI and BCC propose relief from paying the tax for businesses that build or renovate a shop, office or plant. The BCC also wants to scrap an automatic inflation-linked rise for the next two years for businesses on high streets -- a theme taken up by the FSB, which wants a freeze at current levels, with discounts for shops, cafes, restaurants and pubs.

The IoD and CBI want a wider review of the system, with the latter calling for incentives to invest in energy efficiency and new and digital technologies. The IoD suggests machinery should be removed from valuations altogether to encourage investment in productivity-improving equipment.

3) Spur Business Investment

There’s near-unanimity on the need but different views on how to achieve it. It’s also an area the Treasury is actively looking at. The U.K. has the lowest level of business investment as a proportion of economic output of all Group of 7 nations, according to the CBI. Its director-general, Carolyn Fairbairn, says boosting business investment is “the single most effective remedy to the structural challenges facing the British economy.”

The CBI, IoD and BCC want ministers to raise the Annual Investment Allowance -- a tax-free amount businesses can spend on things like buildings and machinery -- from the current limit of 200,000 pounds ($256,000).

The EEF recommends speeding up the rate at which companies can recoup expenditure over the 200,000-pound threshold. It also proposes regional growth funds to leverage private-sector investment.

4) Infrastructure Investment

Businesses want more investment in transport and digital infrastructure. The IoD is calling for accelerated investment in transport and digital links. For the BCC, the priority is full mobile phone coverage along the country’s major road and rail transport corridors. The CBI wants holes in digital connectivity closed, and a pathway outlined to so-called fifth-generation connections. The FSB also wants an uptick in digital investment and a focus on improving local roads.

5) Brexit Planning

The IoD wants the government to issue vouchers worth as much as 3,000 pounds to small- and medium-sized companies to spend on lawyers and consultants to advise them on Brexit preparation. The CBI suggests an online one-stop shop for businesses to get advice and information.

6) Immigration

Businesses are worried about attracting the workers they need after Brexit, especially with unemployment near historic lows. The IoD suggests scrapping the Immigration Skills Charge, which the government levies on companies that hire certain workers from outside the EU. The EEF asks for a freeze in the charge, which it says shouldn’t be extended to EU workers after Brexit.

But that may be a demand too far. The government has already indicated that after Brexit, it will treat foreign workers the same regardless of where they’re from -- though it’s also suggested it could give preferential treatment to workers from countries it strikes trade deals with.

7) Green Measures

The CBI and the EEF take up this theme, with differing aims: the CBI wants the U.K. to incentivize low-carbon products, while the EEF seeks to ensure that the cost of carbon doesn’t overburden heavy manufacturers.

The CBI wants the government to accelerate measures promoting zero-emissions vehicles. It’s also calling for certainty over the U.K. carbon pricing system after Brexit, and for the government to “urgently” confirm whether it will stay in the EU’s Emissions Trading System for carbon allowances.

The EEF is focused on ensuring manufacturers aren’t at a disadvantage to EU competitors because of the U.K.’s carbon floor price -- a minimum payment for every ton of carbon dioxide emitted composed of the ETS price and a supplementary charge set by the government. They want the floor price frozen, and swifter government intervention if ETS fluctuations bring prices above it.

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