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2:57 PM 23rd November 2020
business

Government’s Economic Plans ‘Piecemeal’ And ‘Disjointed’ Says Business Group As It Sets Out Radical Strategy

 
Independent Business Network group has called on the Government to adopt a radical seven-point plan to drive Britain’s post-Brexit, post-pandemic trade and industrial growth. It includes scrapping corporation tax, improving the Pound’s competitiveness, and increasing funding for High Growth SMEs.

The organisation’s blueprint for trade and industrial growth comes in the wake of the Government’s ‘Green Industrial Revolution’ and on the eve of the Chancellor’s one-year Spending Review. It calls for greater coordination and focus on driving the country’s trade and industrial growth.

1. Eliminate Corporation Tax

Central to the strategy is the total elimination of corporation tax. Corporation tax, it argues, is one of the most complex taxes to administer and collect and poses a disproportionate administrative burden to businesses. Without corporation tax businesses will have more cash on their balance sheets, which can be deployed more effectively through greater investment in improving productivity, higher wages, lower consumer prices, and higher dividends.

2. ‘Scale-up’ finance and the ‘British Growth Bank’

The authors argue many high-growth SMEs are constrained in their access to funding. The pandemic has only exacerbated this problem. The current gap between demand and access to funding has risen to £15 billion as a result of the Covid-19 economic downturn, which will further constrict future investment capacity, productivity growth, and job opportunities. To bridge the gap, the report calls for a state-backed ‘British Growth Bank’ to be established to support SMEs, across all sectors, with growth potential.

Modelled on Germany’s Investment Bank, the KfW, the bank should be aiming to guarantee ‘Scale-Up’ loans up to a maximum value of £3million and should have the ambition to take on £25 - £35 billion in liabilities far surpassing the alternative government options currently occupying the same space. Scale-up loans help unlock capital that would otherwise be withheld, enable entrepreneurs to maintain control while high-growth SMEs would enjoy more favourable repayment terms.

3. Competitive Currency
The strategy calls on the Government to seek to ensure the Pound is maintained at a competitive exchange rate against other currencies. This will help the British economy by lowering the country's balance of payments deficit, boost manufacturing, which has the greatest potential for productivity improvement and help to rebalance the economy towards the regions, thus fulfilling the Government’s promise to level up. The move will help address Britain’s productivity crisis, while delivering a resurgent manufacturing base by allowing British industries to compete on the international stage.

4. Refine the UK’s Export Strategy
British SMEs that undertake overseas sales have been found to experience growth nearly twice as of domestically focused SMEs. Many domestically focused SMEs have the capacity to trade overseas but choose not to. The Government should, the authors argues, be more proactive in encouraging businesses to consider exporting and less fixated on Foreign Direct Investment.

Amongst the suggestions outlined are greater credit loan facilities to British firms exporting goods overseas; greater local support through councils and regional trade hubs; a recalibration of DIT’s UK and overseas postings, while also maintaining and extending existing support mechanisms to SMEs.

5. Introduce an economic health test for inbound Foreign Direct Investment
The report urges the government to ensure the long-term presence of Britain’s most successful and valuable firms. It points out that the UK economy is one of the most open and thus most vulnerable in the Western world to foreign capital, and that current measures to stop foreign takeovers of strategically or economically important British companies are largely toothless. Building on the recently introduced National Security and Investment Bill, the Government should include the introduction of an economic health test to assess whether foreign takeovers of UK firms are in the country’s long-term economic interest.

6. GDPR
Reforms to GDPR, particularly surrounding the use of high-quality datasets for software development purposes are recognised as one obvious starting point for fostering an AI-friendly environment.

More generally, the report calls for an overhaul of GDPR legislation. It points out that the burden of compliance overwhelmingly falls on small family-run businesses who are economically unable to undertake the necessary administrative procedures. A two-tiered approach to GDPR, that alleviates the pressures it has placed on millions of small and family-run businesses, would be a significant post-Brexit reform to kick-start the economy.

7. Sector studies on competitiveness

Financial Services

Post-Brexit, the Government must maintain the UK’s leadership in regulatory innovation, using the greater leeway gained from Brexit to advance the dynamism of the City’s offerings. It should begin by reforming key pieces of financial legislation that are constraining the financial services sector’s capacity to innovate, including MiFID II and Solvency II.

British Aviation

The aviation and aerospace industries are stories of British industrial success. Collectively they represent 1.56 million jobs and 4.6 per cent of the country’s GDP. The sector is also an important component in delivering the future of Britain’s trade strategy. It is vital the Government delivers a comprehensive recovery plan for the industry to help increase the aviation sector’s long-term competitiveness, which should include a raft of measures to support the industry, including a six-month suspension of Air Passenger Duty, and provide greater freedom to industry bodies.

British Artificial Intelligence (AI)
Britain is a world leader in technological innovation, but the adoption rate of AI across the wider economy is critical to our continued success. Many SMEs are currently underinvesting in AI.

Forecasts have placed the potential gains of AI as high as £630bn by 2035, raising GVA from 2.5 to 3.9 per cent. However, late-adoption could reduce the overall potential gains for the economy by 20 to 25 per cent.

By introducing a less restrictive financing environment, UK tech start-ups can feel more assured in putting down substantial roots and developing a more comprehensive role within tech hubs - enriching the ecosystem and making it more fertile for future growth. Free from the EU and its suffocating ‘precautionary principle’, which stifles innovation and acts as a disincentive for industrial innovation and the uptake of Artificial Innovation.

John Longworth
John Longworth
Commenting on the publication of the seven-point trade and industrial growth strategy, Chairman of the Independent Business Network, John Longworth, said:

“The Government’s current approach to driving Britain’s trade and industrial growth is disjointed and piecemeal. Its recent ten-point plan for driving its Green Industrial Revolution suggests greater consideration is being paid to securing favourable front-page stories and the endorsement of the eco-Blob rather than what is actually in the wider economic, trade and industrial interests of the United Kingdom.

“The Government must avoid the temptation to slip back into an insular mindset driven by the metropolitan elite, ignoring the majority of hard-working people in the real world of the regions. This is particularly important if they wish to retain the support of the ‘red wall’ voters.

"My concern is that the forthcoming one-year Spending Review set to be unveiled next week will be no different. The Chancellor needs to review each department’s spending plans and set them within the context of a broader trade and industrial strategy designed to turbo-charge Britain’s post-Corona, post-Brexit economic recovery. The Chancellor must, for example, set money aside to deliver greater scale-up funding for Britain’s pioneering, fast-paced SMEs. Doing will see these businesses grow faster and, ultimately, allow the Government to reap the rewards of their commercial success through a larger tax-take, which can, in turn, finance other initiatives.

“Similarly, the Government should scrap corporation tax at the next Budget. Corporation tax poses a disproportionate administrative burden on Britain’s businesses. Through its abolition businesses can deploy the money more effectively through greater investment in improving productivity, higher wages, lower consumer prices, and higher dividends. The Treasury should certainly avoid any tax rises in the foreseeable future.

“Another central column to our strategy is to make the Pound more competitive against other competing currencies. The Treasury should work with the Bank of England to seek to maintain a competitive currency. It will give rise to Britain’s resurgent manufacturing base, tackle the country’s productivity crisis and help deliver the Government’s promise to level-up.

“Freed from the shackles of the bureaucratic, innovation stifling European Union, our radical seven-point plan offers Britain a blueprint for recovery. All that we need now is a bold, coordinated Government to deliver it.