Today, the new Chancellor delivered his first fiscal event. It came with many labels – fiscal event, mini-Budget, a non-Budget Budget – but ultimately, it set out the government’s bold ambition to reach 2.5% growth. The pro-growth focus of this government is a key win from our campaign to Go for Growth and tackle the UK’s long standing low growth and productivity. We were engaging closely with the Chancellor when he was the BEIS Secretary of State and during the leadership campaign. And we'll continue to do so over the coming weeks and months.
For the Truss government, their economic policy is being built around three central priorities:
- Reforming the supply-side of the economy
- Maintaining a responsible approach to public finances
- Cutting taxes to boost growth.
So, what did the government deliver – both in the speech and in their published Growth Plan – and what does it mean for your business?
To start, the Office for Budget Responsibility (OBR) didn’t deliver a forecast. But the Chancellor did confirm that the OBR will publish a “full economic and fiscal forecast before the end of the year, with a second to follow in the new year.” The markets will be closely following this and paying attention to the Chancellor’s fiscal rules that accompany the statement, which will set the tone for how we spend and pay down borrowing.
Tax
What we saw and what it means for business
- Reversal of the Employee and Employer National Insurance contributions (NICs) rate increases will benefit businesses and their employees. The CBI called for the Chancellor to honour the commitment to reverse the increase in Employer NICs combined with retaining the £5,000 Employment Allowance. Together these will free up cash for businesses to invest and support their employees during the tough winter ahead.
- Cancellation of the planned increase in corporation tax from 19% to 25%. The CBI has won the argument that investment is key to growth, and that permanent, broad-based support for businesses which invest in the UK is essential for that investment to take place. The rate increase was proposed in a very different economic climate – before the Russian invasion of Ukraine, the energy crisis and when the UK faced a much lower level of inflation, which has ramped up business costs. The reversal the CBI called for is therefore welcome to keep the UK economically competitive and free up cash for profitable businesses.
- The CBI's focus on full expensing – allowing businesses to immediately deduct the full cost of certain investments – to provide simple, permanent support to businesses investing in capital is paying off. A permanent £1m annual investment allowance limit effectively introduces full expensing for smaller businesses, and there will be a similar but unlimited incentive for investment in plant and machinery in investment zones.
- The CBI has continued to highlight the need to simplify off-payroll working rules to reduce the compliance burden faced by businesses on both the employer and contractor side. Making contractors – rather than engaging businesses and public sector organisations – responsible for employment status determinations should significantly reduce the compliance burden for businesses. It should also make the labour market more flexible, particularly in sectors like IT, construction and logistics.
Next steps
- While the Annual investment allowance (AIA) limit and investment zone first year allowance are excellent first steps, now we need to ensure all businesses which invest in essential capital can benefit from the simplicity and permanence of full expensing.
- The CBI will also be continuing the charge on business rates reform and pushing government to freeze Business Rates for 2023/24 to avoid the inflationary rise, abolish the downwards transitional relief to allow falls in property values to flow through into bills from April 2023 and undertake wholesale reform of the system.
Thriving Regions
What we saw and what it means for business
- The introduction of Investment Zones across the UK, with a commitment to work with the devolved administrations and local partners to introduce them. These will involve tax incentives and planning liberalisation, as well as many of the asks that the CBI has been calling for. For example, enhanced capital allowance allows companies to deduct the full cost of certain investments. And an enhanced Structures and Buildings Allowance, allows businesses to claim tax reliefs on investments into non-residential buildings. These zones will not replace Freeports, but will work alongside them.
- Confirmation that the government will accelerate vital infrastructure projects across the country, with the aim of starting construction on most of them before the end of 2023 – either by directly supporting them or providing indirect support to the bodies responsible for the projects. The CBI has called for the clear identification of strategically important projects and a greater focus on building investor confidence. The clear support for listed projects will provide investors, contractors and suppliers with the certainty required to commit to longer-term success. These projects will help build the UK’s energy resilience with new nuclear power at Sizewell C power station and multiple offshore wind sites, strengthen vital road arteries such as the A303 and A1, deliver much-needed rail improvements such as the Northern Powerhouse Rail and East West Rail, and create the green infrastructure needed for Net Zero with the East Coast Cluster for hydrogen and carbon capture & storage. Many projects face delays or overruns due to the lengthy approvals processes involved. Efforts to simplify and speed up these steps will help deliver infrastructure outcomes when and where they’re most needed.
Next steps
- It's encouraging to see bold thinking to boost regional growth with Investment Zones, and through accelerating major infrastructure projects such as carbon clusters. The CBI will look to work with government and members in the development of these alongside our clusters work. And with some of the CBI’s tax recommendations – including our permanent investment deduction (full expensing) – now centred in Investment Zones, we’ll also be looking to showcase to the government the benefits of tax incentives to stimulate investment across the whole of the UK, and encourage government to expand these nationwide.
- The acceleration of infrastructure projects is absolutely a step in the right direction to supporting growth and achieving big goals like net-zero. It will be welcomed by all industries involved. We’ll be seeking further clarity on the practical steps for speeding up project approvals – a vital next step, along with transparency around the inclusion criteria for projects and how the list will be managed going forward.
- With an extensive library of infrastructure policy work and a wide range of invested members from all stages of the project lifecycle, the CBI will be working with HM Treasury, Cabinet Office, the Infrastructure and Projects Authority and other key stakeholders to help flesh out those practical steps for acceleration and to identify where other projects may deliver growth through inclusion on the list.
Decarbonisation
What we saw, and what it means for business
- For energy efficiency, the government has committed to bring forward legislation to implement new obligations on energy suppliers to provide support to help households take action to reduce their energy bills, saving £200 a year. This will be worth £1bn over the next three years, starting from April 2023. The CBI called for this policy in its Plan for Growth. and is pleased to see the government starting to make much-needed progress on energy efficiency investment. This will help to bring down household bills, reduce household energy use and cut carbon emissions – as well as provide greater resilience against volatile wholesale prices.
- The government announced that they’ll bring consenting for onshore wind in line with other infrastructure, something the CBI has been calling for. This was a crucial announcement as onshore wind is one of the cheapest and most popular forms of energy generation. The government has heard calls from industry to remove planning barriers to its deployment, a move that should be welcomed.
Next steps
- Although new financial support for household energy efficiency is welcomed, this is only a fraction of what was being called for by industry to help reduce bills and turbocharge a domestic energy efficiency market. So, the CBI will continue working with government and industry to secure greater investment.
- There were also no further announcements about the energy efficiency support measures for non-domestic customers or energy intensive industries to assist businesses with the rising energy costs. This means businesses will struggle to plan for beyond the recently announced Energy Bill Relief Scheme. There was also no mention on the next steps of the Energy Bill, which is vital for providing the enabling legislation for essential energy market reform and business models for the low carbon technologies needed to deliver on energy security.
- The CBI will be following up on both as part of informing the review into the Energy Bill Relief Scheme and the review into net-zero. This will include continued calling for support for non-domestic customers such as through the extension and expansion of the Industrial Energy Transformation Fund.
Financial services
What we saw and what it means for business
- An announcement to bring forward draft regulations that will reform the pensions regulatory charge cap, giving defined contribution pension schemes the clarity and flexibility to invest in the UK’s most innovative businesses and productive assets. This would create opportunities to deliver higher returns for savers. This was an important step but not a silver bullet – it will need to be considered alongside the wider policy landscape, including the development of the Long-Term Asset Fund (LTAF) and the reform of Solvency II.
- Later this autumn, the government will bring forward a deregulatory package for the financial services sector. This will include the government plan to repeal EU law for financial services and replace it with rules tailored to the UK, as well as scrapping EU rules from Solvency II to free up billions of pounds for investment. The CBI has been calling for a proportionate and targeted regulatory framework that can enable growth, competition and innovation whilst supporting our world-leading financial services sector. So what does this mean? It’s a welcome calibration of regulations for the specifics of the UK economy, unlocking finance for growth and investment. By getting its financial services regulatory strategy right, the UK can seize the moment and go for growth. This is about culture, behaviours and objectives, not structures. With critical reviews such as Solvency II in the balance, the focus should be on implementing an independent regulatory framework with accountability, efficiency and transparency at its heart, coupled with effective parliamentary scrutiny.
Next steps
- The CBI has been actively involved in the ongoing regulatory review and will respond to the next round of consultations later this year. This includes championing the need for delivery as well as working closely with HM Treasury, regulators, trade associations, financial services firms and parliamentarians as the Financial Services and Markets Bill continues to proceed through parliament.
Innovation
What we saw and what it means for business
- A commitment from the government to continue with its review of R&D Tax Credits, with any reforms announced as usual at a fiscal event.
- An announcement of a Long-Term Investment for Technology & Science (LIFTS) competition, which should support the scale-up of science and technology businesses to bring their innovations to market and compete internationally. We’ll be calling on the government to ensure that the perspectives of scale-ups and institutional investors are included in the competition design.
- Support for venture capital schemes by increasing Seed Enterprise Investment Scheme (SEIS) limits from April 2023 and extending the Enterprise Investment Scheme (EIS) beyond 2025. This will remove uncertainty for investors and promote long-term investment.
Next steps
- CBI will continue pushing for the UK to be a global leader in R&D. This includes calling for the expansion of tax credits to include capital expenditure to drive long-term business investment in R&D, as well as a reaffirmed commitment to raise public R&D spend to £22bn by 2027 which is a vital catalyst for private R&D investment. It also means establishing ‘Accelerate UK’ as a cross-government delivery arm for the new Office for Science for Technology Strategy, to remove barriers to scaling UK innovation and for strategic advantage and economic growth.
