IoD analysis of Autumn Statement measures on tax, trade, infrastructure and entrepreneurship
Additional analysis on the Autumn Statement on the economy, trade, technology, and infrastructure, from policy experts at the Institute of Directors.
On the state of the UK economy, James Sproule, Chief Economist at the Institute of Directors, said:
“The Chancellor bases his plans on economic forecasts from the OBR, but it should be remembered these forecasts are inevitably not very good at showing the likelihood of future volatility, such as we face at the moment. This means the Government will need to keep a degree of flexibility in spending commitments in order to maintain fiscal credibility.
“The Government continues to find balancing the budget a challenge, particularly as tax revenues continue to disappoint. As an interim step, the Government should consider targeting a Primary Budget Balance, i.e. spending no more than tax revenues, before interest payments. Such a target would be more achievable in the short term, and immune to interest rates rises if they come through in the next few years.”
On tax policy, Stephen Herring, Head of Taxation, said:
“It would have been a significant surprise if the Chancellor had abandoned his predecessor’s commitment to reduce the corporation tax rate to 17%. This ‘headline’ rate sets the scene for foreign direct investors considering where to locate new business activities. The UK should be determined not to lose out because another major developed economy has a lower corporation tax rate.
“We were pleased that Philip Hammond also stuck with the previous administration’s intention to increase the personal allowance to £12,500 and the higher rate tax threshold to £50,000 by the end of this Parliament. In the UK an income tax rate of 40% kicks in much earlier than it does with our major competitors, even before it does in otherwise highly-taxed France.
“The main surprise in the Chancellor’s Autumn Statement 2016 was the move to a single fiscal event in Autumn each year. This has the advantage that there will be a few more months to remove more of the ‘gremlins’ which have arisen where a Spring Budget has been enacted in July.”
On infrastructure spending, Dan Lewis, Senior Adviser on Infrastructure Policy, said:
“Allocating £450m to digital rail signalling may prove to be the best decision in terms of infrastructure spending, as it could boost the capacity of the existing rail network by 40% whilst also increasing reliability and connections for passengers.
“The Chancellor’s plans to invest in 5G are ambitious, but it might have been better to focus on spreading fibre to all of the UK’s 30 million premises, and ensuring universal 4G mobile coverage. 5G will not work indoors without a fibre connection to the premises, and trying to be a world leader in this area might be too much of a leap.”
“Overall, as strong advocates of cost-effective infrastructure, the IoD are pleased with the formation of a new ministerial group – the Infrastructure and Projects Authority – to oversee the delivery of priority infrastructure projects. It’s important to understand that all infrastructure varies hugely not just in cost, but in break-even timeframes, network benefits and whole lifetime costs.”
On technology investment announcements, Jamie Kerr, Head of Entrepreneurship and Tech Policy, said:
“Entrepreneurs across the UK will take some positives away from this statement. An injection of £400m into the British Business Bank to encourage more venture capital and scaling up will be hailed in particular. In general, though, there wasn’t a great deal here to offset the twin current concerns for start-ups of stuttering investment (particularly from UK investors) and uncertainty over the pool of skills available to early stage companies. These concerns are being driven by UK investor trepidation on the back of Brexit uncertainty and lack of clarity on future migration policy. More certainty on the road ahead and further incentives for individuals to invest would have been welcome.
“On the tech front, businesses will welcome confirmation of the Government’s intention to set aside £1bn of investment for digital infrastructure. British businesses are some of the most technologically aware in the world and UK consumers amongst the most digitally savvy. It is encouraging to see the Chancellor looking to meet them in the middle to keep the UK at the forefront of the digital revolution.”
On Brexit and trade, Allie Renison, Head of Europe and Trade Policy, said:
“Getting a good Brexit deal means investing in the capability of the civil service, so the IoD is pleased to see the Treasury committing additional resources to Department for International Trade, the Foreign Office and the Department for Exiting the EU. The DIT has a big responsibility on its hands to offset the forecast loss of trade between the UK and the EU. This includes laying the groundwork for deeper trade ties with countries that we currently have agreements with through the EU, which can be formalised after Brexit.
“Resources should be targeted at programmes which businesses understand and use. UK Export Finance has an important role to play, particularly for riskier markets, but awareness is currently too low. Only 8% of exporting IoD members have used its services, so increasing support to UKEF needs to be matched with better communication of its benefits. UKEF should also increase its range of pre-approved currencies, to reduce difficulties some British firms have in markets where contracts and invoicing need to be transacted in foreign currencies.
“Overall, the Government should try to help businesses trade internationally with better intelligence-gathering about export opportunities, as a lack of information is one of the top issues for firms looking to expand overseas.”