Getting back to growth: addressing short term challenges and delivering a sustainable recovery

Ongoing COVID-19 restrictions resulted in retail, hospitality, leisure, and aviation firms facing extreme cost pressures. Following the CBI’s Scottish Budget submission and meetings with senior government ministers and officials, firms in these sectors will benefit from an extension of business rates relief, meaning they will pay no business rates during 2021-22 to help them manage the economic impact of the pandemic.

The public sector spends over £300bn a year on contracts and partnerships with the private sector. Whilst the government is in the process of defining a new set of rules and regulations to govern spending, the CBI and Cabinet Office have worked closely to ensure commercial policy provides a supportive environment for business. From embedding procurement basics enshrined in the Sourcing Playbook to the rollout of specific policies about Social Value and Carbon Reporting in government contracts, the CBI has helped ensure public private partnerships deliver for citizens and for business.

Following the government publishing its Ten Point Plan for a Green Industrial Revolution last year, the CBI called for comprehensive strategies across sectors, including for hydrogen and heat and buildings in our Green Recovery roadmap paper, which has now been published. They demonstrate clear ambition including, a 2035 fossil fuel boiler backstop date, delivering at least one net zero industrial cluster by 2040 and intentions to bring aviation and maritime sectors in line with net zero targets. To help deliver these strategies, the CBI has responded to several of the supporting consultations, including the Low Carbon Hydrogen Business Model and Jet Zero consultations and will continue engaging with businesses to respond to the proposal for a market-based mechanism for low carbon heat.

The government’s call to “work from home if you can” during the pandemic accelerated the demand for hybrid working practices. To support businesses in adapting to these new ways of working, the CBI developed a practical guide, including best-practice case studies from members, that focused on approaches to wellbeing, talent, leadership, and the support employees need to perform to their full potential. This work was supplemented by an additional guide, exploring the management skills needed to make a success of these new ways of working, assisting businesses on their journey.

To help deliver the infrastructure that the UK needs to both level-up and decarbonise the economy, the CBI’s Investing in infrastructure report called on government to create a new Infrastructure Bank. The Treasury confirmed the bank’s creation in the March budget and the CBI is now working closely with government to ensure the new institution has the maximum impact, delivering key investments across the UK’s regions and nations and crowding in more private finance to make the UK infrastructure market globally competitive.

The UK has long struggled with a low level of business investment due to a lack of incentive. The CBI’s 2018 Catching the Peloton report highlighted that the present value of the UK’s capital allowance regime performs badly against international benchmarks. Since its publication, the CBI has privately lobbied the government to increase the competitiveness of the UK’s capital allowances system. In the Spring Budget, the government introduced the capital allowances super-deduction until 2023, providing additional tax relief and bringing forward the point at which businesses received that relief on qualifying business investments.

The CBI has been campaigning for an independent Fiscal Council since 2015, to help promote greater financial discipline. The CBI has continued to raise this with the Finance Minister since the re-establishment of the Executive in 2020. Following consistent engagement, the Finance Minister announced the council’s launch to provide greater transparency and independent scrutiny to the Executive’s finances. It will be a stand-alone and permanent body, initially focusing on the Executive’s draft 2021-2022 Budget.

After allowing digital right to work checks during the pandemic, the Home Office announced a return to physical checks in May 2021 and considered a requirement for previous digital checks to be repeated physically. The CBI used meetings with officials and a letter to the Minister to argue that repeating these checks would be a significant burden for business, that digital checks should be kept permanently, and that physical checks must not be reintroduced while “work from home if you can” guidance remained in place. As a result, the planned requirement for digital checks to be repeated physically was abandoned and the use of digital right to work checks has been extended until April 2022, while evidence for their permanent adoption is being considered.

In response to the unprecedented mental health challenge posed by COVID-19, the CBI published a practical guide detailing the steps employers can take to improve employee wellbeing. Emphasising the role of senior level mental health champions, the guide also set out the importance of targeted action towards early interventions and a healthy culture that prioritises the wellbeing of staff. Addressing the need for senior level champions of inclusive workplaces too, the CBI launched Change the Race Ratio, a business-led campaign that focuses on accelerating progress on ethnic and racial diversity. Attracting over 100 signatories in its first year, the campaign provides signatories with a network of peers and events to support progress towards increased ethnic representation in their firms. In November, this offer was strengthened by the launch of a Board Fellowship programme that helps to connect FTSE250 businesses with ethnic minority board directors.     

CBI members were facing the creation of a rigid investment screening regime. As a result of private engagement by the CBI, the government introduced a series of amendments at report stage to the Bill, reflecting two of the CBI's asks. The amendments remove a proposed threshold over which investment or voting rights would trigger a review and provide clarity on the processing time of claims through a new reporting mechanism written into the Bill. These changes will make the Bill more business-friendly and focused on the implementation of the new regime.

Firms need to make structural adjustments to their workforce when business models change. For many, this has been exacerbated by the COVID-19 pandemic. Following private CBI engagements with government as well as media interest and trade union activity, the government reviewed dismissal and re-engagement practices and decided that it is not necessary to change the law, recognising that there are circumstances in which employers may need to dismiss and potentially re-engage staff. The government has committed to more good practice guidance to support employers.

With the UK and Switzerland interpreting the rollover trade deal differently, firms sending goods between the two countries were potentially missing out on tariff reductions. Joining forces with our sister federation, EconomieSuisse, the CBI urged for a quick resolution through a joint private letter to Ministers on both sides. This resulted in negotiations accelerating to smooth out the complications affecting businesses’ ability to trade tariff free. The intervention was crucial in providing the momentum for both governments to act swiftly.

In private roundtable discussions, reflected in survey data compiled by the CBI, members raised concerns that available innovation support is often difficult to navigate. In our most recent Tech Tracker report, the CBI argued that a lack of government focus on business technology adoption has prevented the UK from fully benefiting from its strong R&D base and creating a truly end to end innovation ecosystem. Announcements in the Innovation Strategy highlighted the government’s aim to address these system deficiencies. An Innovation and Finance Hub will be created to reduce the complexity of accessing business support, and the objectives of Innovate UK will be expanded to include promoting the adoption and diffusion of cutting-edge technologies. 

Firms were facing significant disruption from 31 June as they would no longer be able to transfer data between the UK and the EU. The CBI has argued for a data adequacy agreement in its November 2020 report, Smoothing the Cliff Edge, and spoke with stakeholders on both sides about the need of free flow data. Following our calls, the European Council approved UK/EU Data Adequacy before the end of the grace period. The agreement will support the free flow of data between the UK and the EU - a critical move for businesses across the economy - playing an important role in the everyday trade of goods and services, and the development of innovative technologies such as AI.

With Welsh business and government forging a dynamic relationship during the pandemic, CBI Wales launched a manifesto for the new Welsh parliamentary term, calling for this partnership to continue. The manifesto - Wales Can Seize the Moment - identified six prizes for the nation, highlighting how Wales can secure a sustainable recovery from COVID-19. One of the six prizes identified included using ‘clusters’ to transform the local economy. Following CBI Wales engagement with the government, the Welsh Government has now commissioned a group to investigate the role clusters can play in the nation’s future.

The CBI has shaped the government’s plans on digital policy to capture the opportunities of the coming decade. Recommendations from the CBI’s Building a World-Class Innovation and Digital Economy report were reflected in the government’s Plan for Digital Regulation and asks in our submission to DCMS ahead of the AI Strategy were mirrored in the final UK AI strategy. The language and recommendations in the strategies echo the input of CBI members, including plans to support business adoption of AI and showcase the UK’s AI leadership internationally. The government’s digital regulation policy also now sets out a pro-innovation approach to regulating digital technologies that aims to be proportionate, coherent, and future-focused.

As the economy reopened and restrictions were gradually phased out, businesses faced increasingly widespread labour shortages and significant supply chain disruptions. Though shortages of HGV drivers attracted a high profile, businesses from across the UK and every sector faced their own challenges. After the CBI’s calls for a stronger response from government and a COBR-type taskforce to lead it, the government established a Cabinet Office Supply Chain Advisory Group in October. Tasked with advising the Prime Minister and Chancellor on shortages facing the economy, our engagement with the group has helped to secure government concessions around temporary visas for HGV drivers and poultry workers.

In our blueprint for a Green Industrial Revolution we set out our support for the implementation of a RAB model for new nuclear power, which will enable investors to socialise construction and operational risks that can unlock lower costs of capital. The Nuclear Energy (Financing) Bill has since been introduced to parliament, paving the way for the RAB model as an option to fund future large-scale nuclear projects. The CBI continues to call for further support for nuclear projects and is pleased to see the additional funding allocated to bring forward the development of Small Modular Reactors. 

Firms have faced pressures following the UK’s departure from the EU – from changes to product marking to supply chain issues. Northern Ireland (NI) businesses have also faced complexity and the cost of the NI protocol. Through continued engagement with both UK and EU governments, reports and public and private interventions, the CBI has secured multiple wins for business including ensuring the general sales list for medicines moved to NI through GB were included in EU proposals and extending the UKCA product marking grading period and grace periods for food checks on EU imports to GB. The EU Commission has also opened discussions on key areas such as medicines, customs and SPS in relation to the NI protocol – an important step towards reducing the compliance burden for businesses trading in and through NI.

The CBI shared member concerns directly with HMT and BEIS on sustainable finance, pushing for clarity and a simplification of the regulatory framework. Building on the publication of the CBI’s Sustainable Finance Paper, the government’s roadmap managed these concerns and the need for usable sustainability disclosures and metrics, as well as the importance of international alignment. We will continue to work with members, government, and regulators on these matters as the voice of business on the UK Green Technical Advisory Group, developing the UK green taxonomy which will classify economic activities and how they will be financed in the race to net zero.

The pandemic highlighted the crucial role business plays in supporting workforce health. However, there is lack of guidance and support for firms helping them provide effective occupational health services. This in turn reduces the opportunity to cut the UK’s disease burden and corresponding health costs. In a collaborative venture with Business for Health, the CBI launched the Business Framework for Health strategy. The framework guides firms through what good business-led health intervention might look like, and provides evidence of the health, economic and firm-level benefits of making these interventions. The guidance has been well-received by industry and it’s won backing from political departments. The CBI will continue to develop this strategy, into practical tools to support employers address employee health challenges and continue the journey to a robust health ‘offer’. 

In June we set out our priorities for a Green Industrial Revolution, highlighting the policy gaps that needed to be filled to deliver the government’s ten point plan. Included within was a call for a single strategy that brings together the individual sector plans to pave a pathway for decarbonisation across the economy. The government delivered a net zero strategy alongside the HM Treasury net zero review in October. Business will be at the heart of delivering the investment and innovation needed to achieve the strategy. The strategy provides the clarity needed to unlock business investment and innovation, including a plan to deliver a fully decarbonised electricity generation system by 2035 and support to accelerate the roll out of electric vehicle charging infrastructure. 

COVID-19's changing nature has caused uncertainty for firms and a need for clarity from government on the ability to keep the economy open. Despite the full reopening of the economy in the Summer, the 'pingdemic' caused mass self-isolation and exacerbated labour shortages. To help shape government policy and support business, the CBI produced a new settlement for living with the virus, engaging with key departments, and offering member insight and briefings to the Global Travel Taskforce (GTT) review. These consistent efforts led to a change in government policy and eased the impact of the ‘pingdemic’ on businesses by recommending mass testing to ease mass self-isolation. The GTT review also led to international travel restrictions changes, with the government favouring a two-tier system, as called for by the CBI.

Businesses of all sizes needed support from government to aid their recovery due to COVID-19's disruption and end of the transition period. As a result, the CBI secured the launch of the Recovery Loan Scheme through a series of private engagements with HM Treasury and our Spring 2021 Budget Submission, which reflected feedback from our SME and financial services members gathered in a series of workshops. The scheme provides government guaranteed loans of up to £10m and follows on from the world-leading COVID-19 loan schemes, which lent nearly £80bn throughout the crisis. Following its success in helping members, the government extended the scheme for six months due to CBI and industry calls in private engagement with HM Treasury throughout the summer and autumn of 2021.

Due to a lack of programmes to support sustainable economic growth across the UK’s regions, the CBI called for the British Business Bank to support regional expansion with further funds. As a result, regional funds worth £1.6bn and resources for a range of programmes were announced as part of the Autumn Budget and Spending Review. These funds will play a big role in backing and supporting businesses of all sizes across every region and nation in the UK.

Without reform, the combined tax rate on the financial services sector risks becoming uncompetitively high. The CBI worked with sector associations and financial services members to call for a reduction in the banking surcharge in our Autumn 2021 Budget Submission, indicating a clear commitment to the enhancement of the UK’s global competitiveness. The Chancellor announced a reduction in the banking surcharge rate from 8% to 3%, with effect from 1 April 2023, marking a step in the right direction. The CBI will continue to push for further action to ensure that the UK’s world leading financial services sector has a vital role to play in the recovery, backing businesses of all sizes, supporting jobs and underpinning vital growth and investment.

The UK’s legacy business rates system did not reflect digitisation, advancements in technology or changing business models. The pandemic has also created new challenges for the business rates system. Through the CBI’s Fiscal Autumn Submission as well as numerous public interventions including a joint statement with 40 trade associations spanning the UK economy, the CBI called for business rates reform. Our calls led to short term reforms to the business rate system, including temporary relief in England for eligible retail, hospitality, and leisure properties for 2022-23. More frequent revaluations have also been introduced as well as incentives to improve premises and long-term exemptions from rates on green plant and machinery for on-site energy and heat generation. 

Lack of clear funding for health and life science innovation has held back investment and impacted the UK’s health and life science sectors. In the CBI’s Autumn fiscal submission, we called for increased access to funding for the health and life science industry within R&D, skills, data innovation and general health funding. Subsequent commitments for £20bn in R&D funding by 2045 will help deliver the Life Sciences Vision and support firms as they tackle the health challenges noted in the Prime Minister’s Plan for Growth.

To achieve a globally competitive and thriving ecosystem, the CBI has long campaigned for internationally comparable levels of public R&D investment, an attractive and future-proofed R&D tax credit system and growth in support for adoption and diffusion, particularly in our Don’t Wait, Innovate report. The Autumn Budget saw many of these recommendations delivered, including growth in R&D spending to £20bn by 24/25 and £22bn by 26/27. The Autumn Statement also announced an expansion of the R&D Tax Credit to include data and cloud computing costs. Other key wins included a commitment to fully fund the UK’s participation in Horizon Europe and a growth of 36% to the budget for Innovate UK.

With regional revival plans in strong demand, the CBI published manifestos for newly elected Metro Mayors across the UK. Several CBI recommendations have been taken forward across the English regions. For example, Ben Houchen, the Tees Valley mayor, has used the recommendations on net zero to secure investment in hydrogen and carbon capture. Tracy Brabin, the West Yorkshire mayor, has used the adult education budget to address the region’s shortage of construction skills. And, Dr Nik Johnson, the Cambridgeshire and Peterborough mayor, has set out a new digital connectivity strategy focusing on infrastructure, smart technologies and digital inclusion. These local commitments will drive regional prosperity and help secure a sustainable recovery – a priority for the CBI.

The COP26 summit in Glasgow offered the government and business an opportunity to showcase the UK as a world leader on climate action. In the lead up to COP26, the CBI worked closely with the government to highlight the importance of championing business action to drive net zero ambitions, including showcasing UK business leadership through our B7 presidency in May. During COP26, the CBI hosted a range of events that showcased UK business leadership and successes on the pathway to net zero, including hustings, daily broadcasts with the New York Times and our International Business Dinner. The CBI has also played an important role in activating businesses in this area, encouraging nearly two third of the UK’s largest businesses to sign up to the United Nation’s Race to Zero campaign.

Services account for 80% of the economy and are an enabler for goods trade but are underrepresented in trade policy. In our Seize the Moment report the CBI called for the introduction of an industry-led body to champion cross-services trade priorities given their importance to the UK economy. The body will incorporate all services industries, including those wrapped around goods exports, and prioritise regional growth. The government has since endorsed this initiative and the Trade in Services Council has launched as part of the refreshed Export Strategy, with members directly shaping its remit. This new council will help grasp the opportunities ahead and win more business in critical areas..