Sunak Urged to Mend Fences With Corporate Britain in Budget

(Bloomberg) -- Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

U.K. businesses are looking to Chancellor of the Exchequer Rishi Sunak to repair their strained relationship by doing more to spur investment and ease the burden of taxation when he delivers his budget on Wednesday.

Prime Minister Boris Johnson, who famously dismissed business concerns over Brexit back in 2018, launched a fresh assault this month when he blamed business for a lorry driver shortage that’s roiled supply chains and led to a run on gasoline. Companies, he said, needed to raise pay and improve conditions.

Corporate Britain was already reeling from the announcement in March that a tax on profits will increase in 2023 by a whopping 6 percentage points. Then Sunak increased payroll taxes to help pay for health care, adding billions to the national wage bill. 

Now companies are urging the chancellor to restore the Tories’ image as the the party of business.

“There is a fundamental inconsistency where the government wants to unlock business investment, but its tax policies do the opposite,” said Confederation of British Industry Director-General Tony Danker. “You cannot will the ends and ignore the means to turbo-charge the economy.”

Bloomberg combed through the budget submissions of the most influential business lobbies, which frequently help shape government policy. Here’s a rundown of their key demands:

Investment & Infrastructure:

Sunak’s flagship budget measure in March was a 25 billion-pound ($34 billion) “super-deduction,” allowing some companies to cut their tax bill by up to 25 pence for every pound they invest in qualifying machinery and equipment. 

The CBI, MakeUK -- a lobby group representing manufacturers -- and the Institute of Directors want the deduction extended in one form or another beyond its scheduled end in March 2023. 

Sunak is also being urged to recommit to large infrastructure projects, especially the HS2 high-speed rail project. U.K. media have reported that the project’s eastern leg, connecting Birmingham to Leeds will be scrapped. The British Chambers of Commerce said that would be at odds with the government’s pledge to equalize opportunities nationwide.

Business Rates:

Companies have long called for the government to overhaul business rates on bricks—and-mortar premises, which they say put town center businesses at a disadvantage to online retailers and services. This budget is no different.  

“Reducing the burden of business rates is essential if ailing high streets are to recover,” Federation of Small Businesses National Chair Mike Cherry said. 

The BCC said the government should abandon next year’s uprating of business rates so companies don’t face soaring charges due to inflation. 

The opposition Labour Party has said it would scrap business rates altogether, and the government is already reviewing them. But a person familiar with the matter said Sunak is only likely to make minor reforms at the budget, suggesting business groups will be disappointed. An online sales tax, seen as a possible announcement, would help soften the blow.

Other Taxes:

• The FSB called for the Employment Allowance, which allows some companies to reduce their payroll taxes by up to 4,000 pounds a year, to be increased to 5,000 pounds
• It also said a reduced 5% value-added tax rate for hospitality firms should be extended to March. The rate, which rose to 12.5% this month, is due to revert to 20% in April
• The IoD said R&D tax credits should be extended to incentivise digital innovation, cloud computing and emissions-reducing advances. The CBI backed that and said the credits should also include capital investment
• The IoD also said the government should reevaluate planned increases in business taxes in light of better economic prospects
• MakeUK called for VAT relief on energy costs for manufacturers hit by surging gas prices
• The CBI and TheCityUK called for removal of the banking surcharge – an additional 8% tax on banks. Sunak may partially address that

Skills:

Sunak told the Conservative Party conference this month that skills training is key to ensuring “the economy is fit for the future.” His Plan for Jobs includes a 2.5 billion-pound National Skills Fund. But businesses want more, starting with a doubling of that fund, according to the BCC.

The FSB called for a 3,000—pound grant for employers taking on apprenticeships by Sept. 30 to be continued, at an annual cost of 300 million pounds. 

The CBI said the apprenticeship levy should be broadened to cover lifelong learning, and called for the unemployed to be given individual training accounts to learn new skills, a policy costed at 3.9 billion pounds a year.

Net Zero:

The U.K. has a legal target of cutting net carbon emissions to zero by 2050, and business wants help to get there.

The BCC called for increased government investment to achieve the goal, including through funding the U.K. Infrastructure Bank to leverage private finance with government money.

MakeUK sought more government funding to help manufacturers reduce emissions, while the FSB called for a 50 million-pound grants program to help smaller businesses access green audits and other tools to slash carbon. The CBI called for more investment in gigafactories, including a plant to make fuel cells.

Brexit:

The FSB and BCC called on the government to restart a fund helping small and medium-sized firms deal with administrative costs resulting from Brexit. The 20 million-pound program of 2,000-pound grants was open until June. With new import checks due in January and July, the groups said more companies need help to understand new customs and tax requirements.

Covid-19:

The pandemic slipped into the background over the summer, but case numbers are now the highest in Western Europe, and it’s still weighing on economic activity. The BCC called for a “clear commitment to financial support” for small businesses if the government is forced to bring in new coronavirus restrictions.

The FSB called for a government rebate of statutory sick pay to small businesses required to make the payments to workers on sick leave. MakeUK said rules should be reformed so employees can claim sick pay from day one of illness rather than day four.

©2021 Bloomberg L.P.