British businesses will be the vanguard of the UK’s economic recovery. In the face of weak consumer and public spending, private sector investment and exports remain our best bets for much-needed growth and job creation.
The economy is fragile, and though the risk of a double-dip recession is low, the pace of growth is going to be slow. The Confederation of British Industry forecasts gross domestic product growth of 1.8 per cent this year and 2.3 per cent in 2012.
Some sectors of the UK economy are doing better than others, the manufacturing sector being the star performer. Retailers are facing challenges, and the dominant service sector has delivered a mixed performance.
Given this challenging economic backdrop, the CBI has been vocal in pressing the government to focus on growth to provide the right conditions for businesses to flourish. It has listened, and many of the CBI’s biggest concerns have been addressed in the Budget and its plan for growth.
Now we need to see more flesh on the bones and delivery on the ground. The government has laid the foundation for private sector growth, combining tax cuts to improve competitiveness and simplifying regulation.
On the taxation front, one of the standouts is the extra 1p cut in corporation tax, which will help companies of all sizes increase investment. The chancellor’s decision to signal that the 50p top tax rate is only temporary should help attract mobile talent to the UK, but we still need to know when this will happen.
Providing greater certainty on the tax treatment of foreign profits will make the country more attractive for multinational businesses, and it is encouraging that some big names, including WPP, the advertising agency, are already considering relocating to the UK.
There has been much-needed support for small and medium-sized enterprises to help them grow at home and abroad, as well as positive moves on the regulation front.
The burden of regulation weighs particularly heavily on private and family-run businesses, which do not have the time or the large human resources departments needed to cope with much day-to-day employment legislation.
The three-year moratorium on employment legislation for micro-companies is helpful, but the government should go further and apply a new test when it comes to making new employment law. It should think small first, because if the law works for the smallest companies, then it works for businesses of all shapes and sizes.
Widening the scope of the Enterprise Investment Scheme will help bridge the funding gap for SMEs. This could unleash a new wave of finance for the most entrepreneurial companies, and doubling the lifetime limit on entrepreneurs’ relief within capital gains tax will encourage them to keep innovating and growing their businesses, as well as providing much-needed investment for start-ups.
The government should now press ahead with developing a mid-cap corporate debt market. Exporters could benefit from plans to widen the scope of the exports credit guarantee department, but the government has to make sure the scheme reaches the businesses that need it. UK companies will then be well placed to meet overseas demand, especially in fast-growing parts of the world such as Asia.
The government has also made the right noises on reform of the planning system. To exploit demand for investment in large infrastructure projects in areas such as energy, waste and flood management, it needs to cut uncertainty for investors and unblock the planning system.
Providing more flexibility on changing land use, introducing a presumption in favour of development and piloting land auctions all create the right mood. But businesses have been here before, so we now need to see timely planning decisions on infrastructure of national importance dovetail with the government’s localism agenda.
There are still many areas where the government could do more to help business grow and invest. There are no silver bullets, so it will always be work in progress.
It was disappointing that the government did not use the Budget to restore the incentive behind its carbon reduction commitment. A scheme designed to encourage energy efficiency is now nothing more than a crude tax. If the government will not restore the revenue recycling element, it should stop the CRC and find a better and simpler way of promoting energy efficiency.
The extra £2bn for the Green Investment Bank was welcome, but to be really effective it needs to have powers to borrow from day one.
The unexpected tax rise on North Sea oil and gas is disturbing, and may also have an impact on future investment.
Beyond the Budget, one of the biggest drags on businesses, undermining job creation, is the employment tribunals system. The system is broken. Weak and vexatious claims should be weeded out and there should be greater use of pre-hearings. The unfair dismissal qualifying period should also be extended to two years to give more time to assess the potential of an employee. Employers need confidence to hire.
The government may have a plan for growth, but businesses now need to see that plan turned into action with a clear timetable for delivery.
The writer is director-general of the Confederation of British Industry