A week today the Chancellor will stand up to give his Autumn Statement. While much of the political debate had been focused on deficit reduction versus deficit spending, but the intensification of the Eurozone debt crisis has made one thing abundantly clear: sustainable debt and growth both matter.
Not only does the Chancellor need to reduce the deficit (and eventually the debt), but he also needs to boost growth. This is crucial because weak growth could undermine the government's fiscal plan as much as over-spending.
So what should the Chancellor do? Given the tumult that unsustainable debt-mountains have caused across Europe, it is clear that the government must maintain its fiscal credibility. Markets need to know that the UK's debt burden is under control. But, there is a balance to be found between medium-term fiscal credibility and providing a short-term boost to the UK's growth and its long-term potential to grow.
There have been a series of suggestions about tax reforms that the government could enact such as…
While these reforms may well be welcomed by business, when the government's fiscal position is as constrained as it is, what we're interested in are policies that will have the biggest impact on incentives to invest and grow: government should prioritise reforms that will have a measurable impact on growth now and in the longer term.
Business investment and innovation are needed to drive the long-term sustainable growth this country needs. The tax system must be reformed to incentivise this innovation and investment.
Our key recommendations would provide a short-term boost, while supporting the competitiveness of the UK in the longer term. They include:
- Making the R&D tax credit more effective at increasing innovation by making it payable above the line, and therefore applicable to loss-makers
- Overhauling the tax treatment of capital to better reflect the life-span of modern machinery.
For more information, see our submission to the Chancellor ahead of the autumn statement.