On the 27 October, the Chancellor of the Exchequer will set out the government’s 3-year spending plans at the Spending Review alongside an Autumn Budget. In response, this week the CBI launched its joint submission to the Autumn’s fiscal events, calling on government to kickstart an investment revolution across and within the UK.
Decisions made this Autumn at the Budget and Comprehensive Spending Review (CSR), will define our trajectory for the decade ahead. They bring an opportunity to generate higher investment, stronger growth, and UK leadership in new markets. If we miss this chance, we’ll fall back into old patterns of tax rises and austerity, chronic underinvestment, regional inequality, and a risk we miss our net zero target. When we look back on this decade, it’s crucial we see a government that took decisive action and unlocked investment. A government that went for growth and made big bets for the UK.
What can the government do to stimulate investment?
Following conversations with members and international investors, the CBI has identified four levers (below) that the government can use to spark both domestic and international investment. Unlocking these across both the Budget and Spending Review will be crucial to ensure the UK levels-up, reaches net zero, and grasps the prizes identified within the CBI’s leading economic vision – Seize the moment. All of this will ensure that business can help the government to reach its ambitions and achieve the much-needed Plan for Growth.
What the CBI has called for:
- Deliver smart taxation that rewards investment: creating a smarter tax environment to drive domestic and international investment behaviour will be crucial to boosting productivity and creating sustainable public finances. The current tax system needs to be better aligned to the government’s priorities particularly net zero and levelling-up, and reward businesses that choose to invest.
Recommendations on smart taxation include:
- Unlock business investment into net zero and levelling-up through seismic reform of the business rates system, including increasing the frequency of revaluations and removing disincentives preventing green improvements
- Commit to introduce full expensing for capital expenditure beyond 2023 and targeted ‘green’ investment-focused capital allowance mechanisms
- Accelerate the creation of new skills for new markets: higher investment in skills is vital to economic recovery and increasing productivity, raising wages in real terms, and ensuring people who have been held back for too long can realise their potential. It is also a cross-cutting enabler for raising R&D investment, decarbonising and levelling-up. Closing future skills gaps could provide a £150bn uplift to GVA by 2030. Addressing current skills needs will enable firms to invest in future skills, retraining and upskilling.
Recommendations on skills include:
- Turn the Apprenticeship Levy into a Lifelong Learning Levy to unlock necessary business investment in training, and enabling firms to use the levy on a wider range of more flexible and shorter courses
- Introduce individual training accounts for unemployed individuals and those with the biggest retraining needs to spend on accredited courses
- Remove barriers hampering firms’ ability to recruit overseas workers by urgently updating the Shortage Occupation List (SOL) in line with the Migration Advisory Committee’s outstanding recommendations and committing to annually reviewing, and making the points-based system more flexible
- Fast-track catalytic public investment to underpin private sector investment: government must provide catalytic public investment to speed up the development of new industries and cutting-edge tech in order to decarbonise and establish major infrastructure projects. Public investment is vital to laying the foundations for future private investment. It aids UK’s competitiveness and helps stimulate new markets where only public intervention can make the difference.
Recommendations for catalytic public investment include:
- Deliver on the Plan for Growth and Innovation Strategy by delivering on the commitment to invest £22bn in direct domestic R&D funding by 2024-25, setting out a three-year spending profile and front-loading funding to maximise private investment
- Designate energy efficiency and heat as an infrastructure priority by providing a comprehensive long-term package of funding to make our buildings more energy efficient and move away from fossil fuel heating solutions
- Provide long-term funding to decarbonise UK transport systems (including for public transport) and to develop a UK electric vehicle market. Also use public investment to stimulate private sector investment and R&D into technologies to decarbonise heavier modes of transport (such as freight, aviation and maritime)
- Ignite government as the market maker: business has greater confidence to invest when it has clarity, certainty, and long-term commitments from government. The government must use its new-found regulatory freedoms and the UK’s reputation for marrying high standards and innovation, to support domestic business growth and attract FDI. The government can do this through its unique role as a market maker by establishing necessary market rules, pricing structures, institutional bodies, utilising regulators and publishing long-term strategies that give clarity and detail.
Recommendations on government’s role as a market maker include:
- Require all regulators to prioritise innovation, net zero and investment as part of their core remits, by setting out new, transformational terms of reference. Ensuring regulation is better aligned to government priorities and the Plan for Growth
- Include a strong focus on the role and contribution of economic clusters in promoting regional growth in the Levelling Up White Paper, including a commission for the CBI to write the playbook on taking clusters from good to great. And work with industry to develop a toolkit responsive to business demand to support and nurture clusters
Over the coming weeks, the CBI will continue to feed in key recommendations to HM Treasury ahead of the Budget and CSR, alongside discussing recommendations at the upcoming party conferences.
We’ll also monitor government announcements in the run-up to the 27 October and provide members with exclusive key insights on the day, on My CBI.
For any questions on the CBI’s Budget and CSR submission, please contact Katy Recina, Principal Policy Adviser for Economic Policy.