Five radical policy shifts to get the government out of the high tax, low growth trap

The government is caught in a trap, in which it can’t cut spending and it can’t bring taxes down. As long as there is low growth, it’s a vicious cycle that’s hard to break.

So the CBI has called on the government not to settle but instead break conventional Westminster policy thinking. It needs to aim higher if it wants to meet its own ambitions for the economy - and here are five ways to do it.

1. Replacing the Super-Deduction with a permanent deduction for capital spending

Any salesperson knows that a price rise is a great moment to introduce a discount. The six-point Corporation Tax rise next April will be a big shock for businesses. So use it to stimulate unprecedented investment and innovation, by replacing the Super Deduction (due to end in March 2023) with a 100% tax deduction for capital spending.

2. Turn the Apprenticeship Levy into a more flexible Skills Challenge Fund

Skills policy hasn’t delivered what we need, the Apprenticeship Levy hasn’t achieved what it set out to do and, whatever government thinks, businesses can’t magic the skills we need to address acute shortages overnight. Employers need rapid-fire, high-quality skills – so do employees.

So add flexibility to the Apprenticeship Levy and allow businesses to buy training modules, not just full qualifications. A proportion of funds can still be reserved for apprenticeships, but the rest could be turned to other recognised training that better meets businesses’ evolving requirements.

3. Go for green growth

The UK can lead the world on this, so let’s accelerate our plans. That’s easy to say and harder to do, but here are some immediate steps that would make a big difference:

• Spend competitively where it matters most – take energy efficiency for example, where there’s a long way to go before we reach the extra £3bn every year needed to drive investment to properly retrofit our homes and businesses and bring down everyone’s energy bills.
• Place that big bet on hydrogen, give investors certainty and put the right incentives in place, before March’s Budget.
• Be more accountable – let’s measure how competitive we really are to encourage more joined up thinking.

4. Aim to be the most future-focused regulatory environment in the world

Brexit has given us an opportunity to act on regulation. Business doesn’t want to throw the rulebook on the bonfire, but they do need rules that are more agile to reflect new technology and consumer behaviour. They need ones that are more proportionate too, rooted in a better balance between investment and consumer protection. And they need more dynamic regulators that act quickly and decisively – just as the MHRA enabled the UK to lead the world on vaccines. Establishing a new Office for Future Regulation would be a good start.

5. Get serious about having the workforce for the future

Business can’t take the government’s immigration position seriously until government itself gets serious about home-grown skills.

So how can we generate more of the skills we need at home, so we can rely less on immigration? An independent Council for Future Skills would help the government break out of silos, to steer policy to meet the gaps – both current and future – and foster greater collaboration between the Home Office and the Department for Education too.

For more ideas on how to turbo-charge growth, read more about the CBI's Seize the Moment campaign.