Tax and regulation: a year of action

After a tumultuous 2019 we head into the final days before Christmas wondering if this year will be the first ever not to have a UK Budget. The change of Conservative leadership, Article 50 extension and then a General Election has meant that successive Chancellor’s plans for a Budget to take place in the Autumn of 2019 have been scuppered. Of course, parliament will likely sit for a week or so after the results of the General Election are confirmed, but it is unlikely any government will be able or wish to squeeze in a Budget.

Despite there being no Budget, 2019 has been a busy year for the CBI as we build our evidence and campaigns to convince policy makers and politicians to make vital changes to the UK’s tax and regulatory system. Here are some of the year’s highlights…

Progressive business rates that work for everyone

• In April we submitted written evidence to the Treasury Select Committee’s inquiry into the impact of business rates on business. In August we urged the Committee to publish their report, despite the on-going political uncertainty. And finally, in November, we saw the Committee respond, accepting four of the CBI’s recommendations, paving the way for real reform to the system in 2020
• In May we convened firms, policymakers, academics and politicians at our first ever business rates conference. We saw a keynote address from CBI President and Chairman of Tesco John Allen, speeches from then Financial Secretary to the Treasury Mel Stride MP and member of the Treasury Select Committee Catherine McKinnell MP. We also saw CBI members share their experience and heard from academics working on the question of how to reform the system. As a result of this landmark event the issue of business rates received significant media coverage, moving the debate beyond the struggles of the high street to recognise this as a whole economy challenge
• The CBI continued to engage with officials and ministers at the Treasury following the event, with conversations focussed on practical short-term options as well as longer term reform
• In November all the major political parties recognised the need to reform the broken businesses rates system, pledging their versions of reform in their election manifestos.

Find out more about the CBI’s business rates campaign here.

Secure an international tax framework fit for the digital age

In February we responded to the UK government’s consultation on the new Digital Services Tax which included the results of our business survey on the topic. In March we welcomed the officials working on the consultation to a roundtable with members.

• By July it was time to go public with our concerns on the digital services tax and Chief Economist Rain Newton-Smith spoke to journalists at the Telegraph to set out the reasons why the DST would send the wrong signal to investor and businesses looking to grow tech in the UK
• In July the government confirmed that they would delay the payment schedule for the DST, providing businesses with much needed additional time to calculate their DST liability and fund the payment of the tax
• In March we responded to the OECD’s consultation on tackling the tax challenges of the digitalisation of the economy. In June the OECD’s Director for the Centre for Tax Policy and Administration, Pascal Saint-Amans joined the CBI Taxation Committee to hear business views on the consultation. In October the OECD announced its new ‘Unified Approach’ and we welcomed UK Treasury officials to the CBI’s Taxation Committee to hear business views on the proposal as they headed into negotiations with other nations
• The CBI submitted its response to the ‘Unified Approach’ in November highlighting that a multilateral approach must come hand in hand with centralised administration (through a One Stop Shop) otherwise the administration of the proposal will quickly become unworkable. Later that month we attended the public consultation in Paris and spoke further on the need for (and benefits of) a One Stop Shop
• The OECD also released a consultation on Pillar 2 of their Programme of Work. The consultation gave little away and demonstrated that political progress on this Pillar has been slow, with many questions left to answer. The CBI responded to the consultation at the beginning of December with proposals on how the project could be taken forwards but also outlining those areas where further clarity is required over the policy objectives.

Find out more about the CBI’s international tax campaign here.

Tackle the rising cost of tax and regulation

• This year the CBI formally launched its campaign to tackle the rising cost of tax and regulation which makes it harder to do business in the UK and stifles investment
• We published a report calling on the government to reset the relationship between HMRC and business. Businesses tell us that the ease of dealing with the administration of tax is as important for UK competitiveness as the rate of tax. The response from HMRC has been encouraging with a commitment to work with business on the Customer Compliance Manager (CCM) handover process
• We have also kicked off a new piece of work, the first output of which will be in 2020, to estimate the cost of tax and regulation to business.

Find out more about the CBI’s campaign to tackle the cost of tax and regulation here.

Make the UK the best place to start and grow a business

• In January we saw the roll-out of the British Business Bank’s network of regional managers. The CBI has long called for a regional network of experts to directly engage SMEs and guide them to the finance they need to grow
• In May we welcomed the proposals put forward by the FCA to ensure more small businesses can access vital support and advice when they need it most.

Find out more about the CBI’s campaign to increase access to funding to help SMEs grow here.

Tax that works for a modern and flexible workforce

• Throughout 2019 the CBI have been working with HMRC to update the online tool used for tax status determinations. This engagement included 1-to-1 meetings for members with HMRC to discuss their concerns with the tool directly; HMRC roundtable invitations for CBI members to attend updates for the development of the tool; HMRC attending the Employment taxes working group to walk members through the new tool prior to its release. The close relationship with HMRC links the CBI and its members to directly impact policy and help ease the IR35 implementation process for all businesses impacted
• In June the CBI welcomed the officials from the Treasury’s employment taxes team to speak to members about IR35, the Taylor review, Apprenticeship Levy and National Minimum Wage enforcement
• In July, following months of member consultation, Carolyn Fairbairn wrote the Shadow Chancellor John McDonnell on the Labour Party’s Inclusive Ownership Fund proposal. The letter was picked up by the Financial Times outlining the significant damage the policy could have on business investment and employee share owners. The CBI met with representatives of the Labour Party throughout 2019 continuing to raise concerns with the IOF policy as well as other elements of their policy proposals including renationalisation
• In November, the Labour party published its report Rewriting the Rules setting out its plans for corporate governance, accountability, and regulation including updating their IOF policy. It recognised some important limitations of the original idea including how it would apply to private businesses and multinationals. They also recognised the need to incentivise employee ownership trusts. This tightened the scope of the policy somewhat but remains a significant concern for businesses within the Labour party’s 2019 manifesto.

A tax system that drives business investment

• The CBI responded to the Treasury’s consultation into off-payroll working in the private sector calling for a delay, a proper impact assessment and changes to the detailed implementation plan. In April the CBI’s evidence was used in a parliamentary debate on the subject, highlighting the issues business face, bolstering the case for a delay. At Budget 2018, the government committed to delaying implementation of IR35 by one year, to April 2020 giving businesses essential time to prepare
• In March the Treasury published revised legislation on how the new Structures and Buildings Allowance will work, a key success from last year’s Budget and the CBI’s report Catching the Peloton. This followed engagement with CBI members through roundtables and the revisions provide more time for businesses to consider how they will use the allowance
• In August we published our latest report on business investment and the tax system, Untapped Investment, which took a detailed look at the R&D tax credit, calling on government to widen the scope in order to meet the target of 2.4% spend on R&D as a proportion of GDP by 2027. In October we wrote to HMRC highlighting growing concern with the slow processing of R&D tax credit payments. The Conservative and Liberal Democrat manifestos includes our policy recommendation for expanding the use of data in R&D as a qualifying R&D activity for the tax credit. The Conservative manifesto also pledges to increase the tax credit rate from 12% to 13%.

Economic disruption avoided with payments breakthrough

• From April through to July, the CBI contributed to securing an extension on the implementation for Strong Customer Authentication (SCA) across card payment systems, helping prevent disruption to e-commerce businesses. The agreed delay will give business more time to prepare and prevent potential losses of millions of pounds in critical sales

Putting financial services at the heart of the low-carbon transition

• In July we published our Green Finance position paper, which outlined the key business recommendations for government ahead of the release of their Green Finance Strategy. We launched this with members and Rhian-Mari Thomas, CEO, Green Finance Institute.
• The government’s Green Finance Strategy included key CBI asks such as building on the success of the Green Finance Task Force, increasing the availability of data to inform climate-related disclosures and drawing on the TCFD recommendations more widely.

Financial services regulation that puts customer first

Throughout 2019, the CBI’s Funding our future advocacy campaign on developing a smarter regulatory framework for financial services that puts customer first stressed why this sector matters to business and to the economy. Building on the CBI’s 2018 report, it engaged parliamentarians and government ahead of the regulators and Bank of England.  This has included roundtables with the City Minister, Chair of the Treasury Select Committee and the CEOs of the FCA and the PRA. A number of position papers have been developed on financial services innovation, regulation and taxation as well as a response to the TSC inquiry on the future of financial services in September and a response to the first call for evidence part of HM Treasury’s Financial Services Future Regulatory Framework Review in October.

2020 will be a year of change and impact on tax and regulation

As we look ahead to 2020 the CBI will continue to campaign on these vital issues for business. The opportunity of a new government and possibly several Budgets next year means there will be plenty of opportunity for the CBI to get the business voice heard on important domestic issues such as business rates, a competitive and pro-investment tax system and a simple and stable regulatory regime for financial services.

We are also likely to see continued progress at the OECD on tackling the tax challenges of digitalisation as they seek to reach a consensus position on the broad architecture of the proposals. The CBI will be developing its position on Sustainable Finance, building on the publication of its Green Finance Position Paper in 2019. We will continue to advocate for smarter regulation at EU level, working with BusinessEurope, sister federations and European business organisations to ensure the UK business voice is heard in all key decisions made at the European level.

2020 will also see the CBI launch its first business costs tracker to highlight the growing burden of tax and regulation on business. We will also be publishing new work on regulation, including the future role and design of economic regulators such as Ofcom, Ofgem and others.

So much still to do. With a final thanks to all the members who have supported our campaigns throughout 2019 we look forward to continuing to work with and learn from you in the next decade.