Intelligence Briefing - 18 June 2010

Published: 18/06/2010

EEF lobbying leads to successful outcome on health and safety sanctions | Government's 'red tape' committee pressed on regulation | Weekly Focus - top 10 Budget predictions | In the news | Economic data review | The week ahead

EEF lobbying leads to successful outcome on health and safety sanctions

Our campaign to prevent an additional duty on company directors has been successful – the proposals have been dropped by the new government. Before the election there was considerable pressure to introduce a new criminal duty with a maximum penalty of 2 years imprisonment for breaches of health and safety law. EEF had a central role in delaying a decision until after the election. It has now been confirmed that legislation will not be pursued.

For further information contact Steve Pointer, Head of Health and Safety Policy

Government’s ‘red tape’ committee pressed on regulation

EEF and a group of member company executives met Michael Gibbons, chairman of the Regulatory Policy Committee (RPC) - a body set up by the previous government to scrutinise the policy-making process and challenge poorly conceived regulatory proposals that is widely expected to be given greater powers under the new administration. EEF used the opportunity to emphasise the importance of reducing the mounting regulatory burden on manufacturers to delivering a better balanced and growing economy. Specific issues discussed included concerns about the volume of environmental and employment regulation, the need for more rigorous control over the cumulative costs of regulation and the lack of understanding amongst regulators about how business works.

For further information Roger Salomone, Regulation Adviser



Weekly focus - Top 10 Budget predictions

Ahead of next week’s crucial Budget, EEF tries to indentify some of the key issues which are likely to affect members.

Possible announcement

EEF response

1

VAT – An increase, possibly staggered, in the VAT rate.

This is needed to rebalance the economy and raise revenues. If the Budget does not proceed with at least a 1% increase we risk uncertainty about more tax rises further out.

2

Capital allowances – The coalition has talked about the simplification of reliefs and allowances to fund a cut in corporation tax. This could include a cut in the capital allowances rate and abolition of the Annual Investment allowance.

Scrapping the AIA and cutting the capital allowances rate will undermine rather than reinforce economic rebalancing. The tax system more efficient in recognising the short lives of modern machinery. The Chancellor could do this by extending short-life asset election.

3

Corporation tax – a 3p reduction in the headline rate of corporation tax, staged over the life of the parliament.

Reducing the corporation tax rate over the parliament should be a priority. Given the tough decisions on how to reduce the deficit and generate growth, there is no need to rush ahead, especially if an immediate cut was financed by cuts to capital allowances.

4

NICs – the coalition agreement pledged to reverse the increase planned for April 2011, but change the thresholds.

With public sector job losses looming businesses need a complete package of corporate tax reform which will support investment and job creation – NICs is part of this. The rise would have had to be absorbed by squeezed margins, but threshold changes shouldn’t undo progress in aligning NICs and income tax.

5

Capital Gains Tax – The coalition document states that non-business capital gains will be taxed at rates similar or close to those applied to income, with generous exemptions for entrepreneurial business activities.

Given that previous changes to CGT have led to unintended consequences reform is needed, but should be consulted on. Closing the gap between income and CGT rates is a good starting point, but reform should also provide incentives to invest in productive businesses for the long-term.

6

2015 borrowing target – The Conservatives have previously stated that they would eliminate the ‘bulk of the structural deficit by the end of the next parliament’. The budget is likely to set an end of term target for borrowing and debt.

The government should aim to get borrowing below 3% by the end of the parliament. A clearly stated ambition is part of a credible deficit reduction plan, but the OBR must judge this to be achievable with planned measures.

7

5 year tax reform plan – The Conservatives have previously outlined their intention to put forward a longer term plan for business taxes and reform. The Budget will provide more detail on the process and areas of reform.

The UK’s tax system needs reform to keep it internationally competitive. A five-year agenda for reform as a useful first step towards improving competitiveness and predictability after the drift in tax policy and strategy during the past few years and stop the legislative churn that has added to complexity.

8

Tax/Spend balance – The stated aim has been for an 80/20 split between spending cuts and tax rises to reduce the deficit. With up to date fiscal forecasts the Chancellor may confirm or amend this approach in the Budget statement.

For the Chancellor to stick to this 80/20 split, it could mean significant cuts to unprotected, but important areas of investment in future sources of growth and competitiveness. A 60/40 balance is more realistic if fiscal consolidation is to align with rebalancing.

9

DELs – publication of government department spending totals is possible, but unlikely. Some commitments have been made, but the remainder is likely to depend on the outcome of the Spending Review process.

It is unlikely that the Budget will go this far, but we’ll be keeping a close eye on capital budgets.

10

Environmental taxation – the coalition agreement states that the government wants to raise a higher proportion of revenue from environmental taxes. We could see immediate reform or consultation of air passenger duty, the climate change levy and a carbon tax.

There must be consultation about new or reformed environment taxation. In principle, these should not be an additional cost on business; the competitiveness of energy intensive firms should be protected and revenues should support clean technologies.

 


In the news

The Budget and economic data have led coverage this week. We released our budget submission which was covered in the FT, Guardian and Daily Telegraph, whilst our Policy Director Steve Radley had an opinion column in the Daily Mail. Chief Economist Lee Hopley was interviewed on BBC on the OBR forecasts and the budget, whilst our comments on the latest April output figures were quoted in The Guardian and BBC. Our latest pay figures were reported by the FT and Press Association, whilst separately we previewed our forthcoming seminars on the Equality Act which were featured in The Manufacturer, Works Management and Manufacturing Digital.


Week in Review

Consumer Price Indices

The CPI inflation rate fell slightly to 3.4%. RPI annual inflation was 5.3%. The largest downwards pressures on both indices came from food and non-alcoholic drinks; and transport. Conversely, housing and household services exerted a significant upwards pressure on this month’s inflation figures.

Labour Market Statistics

The claimant count measure of unemployment – which records the number of people claiming Job Seekers’ Allowance – was down by 30,900 to 1.48 million, the fourth consecutive monthly fall, but there are still over 670,000 more claimants than at the pre-recession low in May 2008. The ILO measure of unemployment rose by 23,000 to 2.47 million in the three months to April. The three-month unemployment rate fell slightly to 7.9% from last month’s figure of 8.0%.

EEF Pay trends

The three-month average settlement was 1.5% in May, up again from 1.4% in April and the highest reading since March 2009. The proportion of pay deals between 0.0% and 2.0% rose to 38.3% in the three months to May, up from 37.7%. In the three months to May, pay freezes accounted for only 30.6% of settlements, down from 33.3% in April and 46.1% in March. This marked the sixth consecutive decline in the proportion of pay freezes.

Retail sales

Month on month retail sales volumes rose by 0.5% in May compared with revised figures for April showing a fall of 0.1% last month. Food sales and household goods sales were behind the rise in spending.

Public sector finance

Estimates for the public sector budget deficit in May 2010 were £14.1bn, compared with £15.7bn in May 2009. Public sector net debt this month was estimated to be £903bn (or 62.2% of GDP) compared with £774bn (55.4% of GDP) last year.


The week ahead

Wed 21st: MPC Minutes

Fri 23rd: GDP (Q2, prelim); Index of Services


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